Table of Contents
- What Is the House Price Index (HPI)?
- Key Takeaways
- Understanding the House Price Index (HPI)
- Recent HPI Changes
- How the House Price Index (HPI) Is Used
- The House Price Index (HPI) vs. the S&P CoreLogic Case-Shiller Home Price Indexes
- Fannie Mae and Freddie Mac
- How Do You Tell If a House Is a Good Price?
- Should I Offer the Full Asking Price on a House?
- What Brings Down the Value of a House?
- The Bottom Line
What Is the House Price Index (HPI)?
Let me explain the House Price Index, or HPI, directly to you. It's a broad measure of how single-family property prices are moving in the United States, published and updated by the Federal Housing Finance Agency (FHFA). Beyond just tracking price trends, I see it as an analytical tool that helps estimate changes in mortgage defaults, prepayments, and housing affordability.
Key Takeaways
Here's what you need to know upfront: The House Price Index measures the movement of single-family house prices across the U.S. It's published by the FHFA using monthly and quarterly data from Fannie Mae and Freddie Mac. Investors like me use the HPI as one of several economic indicators to gauge broader trends and possible stock market shifts.
Understanding the House Price Index (HPI)
The FHFA puts the HPI together using data from Fannie Mae and Freddie Mac. It's based on transactions with conventional and conforming mortgages on single-family properties. As a weighted repeat sales index, it measures average price changes in repeat sales or refinancings on the same properties.
You'll find an HPI report every quarter, plus a monthly one. The data comes from reviewing mortgages that Fannie Mae and Freddie Mac have purchased or securitized.
Recent HPI Changes
In April 2024, the HPI increased by 0.2% from the previous month. On an annual basis, home prices rose 6.3% from April 2023.
How the House Price Index (HPI) Is Used
I use the HPI as one of many economic indicators to monitor broader trends and potential stock market changes. Rising house prices typically create more jobs, build confidence, and encourage consumer spending, which boosts aggregate demand, GDP, and overall growth.
When prices fall, consumer confidence drops, and real estate-related companies lay off staff, which can lead to a recession.
The House Price Index (HPI) vs. the S&P CoreLogic Case-Shiller Home Price Indexes
The HPI is one of several home price trackers, with the S&P CoreLogic Case-Shiller indexes being well-known alternatives. They use different data and methods, so results vary. For instance, the HPI weighs all homes equally, while Case-Shiller is value-weighted.
Case-Shiller only uses purchase prices, but the all-transactions HPI includes refinancing appraisals and offers wider coverage. The U.S. CoreLogic S&P Case-Shiller index rose 1.2% from March to April 2024 and 6.3% annually from April 2023 to 2024.
Fannie Mae and Freddie Mac
The HPI tracks price changes for homes sold or refinanced through mortgages from Fannie Mae or Freddie Mac, excluding sources like VA or FHA loans.
Fannie Mae is a government-sponsored enterprise listed publicly but operating under a congressional charter. Its goal is to keep mortgage markets liquid by purchasing and guaranteeing mortgages from lenders like credit unions and banks—it doesn't originate loans itself. This creates a secondary market that supports homeownership for low-, moderate-, and middle-income Americans. It was created in 1938 during the Great Depression as part of the New Deal.
Freddie Mac, another GSE, buys, guarantees, and securitizes mortgages into mortgage-backed securities. These MBS are liquid and carry credit ratings close to U.S. Treasuries. Thanks to its government ties, Freddie Mac borrows at lower interest rates than other institutions.
How Do You Tell If a House Is a Good Price?
To figure out if a house is priced well, check recent sale prices in the neighborhood, compare with other listings, talk to a real estate agent, and consider potential appreciation.
Should I Offer the Full Asking Price on a House?
Whether to offer the full asking price depends on factors like if it's a buyer's or seller's market. In a seller's market, you might need to offer full or more; in a buyer's market, you could go lower. If offering more, aim for 1% to 3% above.
What Brings Down the Value of a House?
Several factors can lower a house's value, including undesirable new construction like a highway nearby, neighborhood foreclosures, higher risk of natural disasters or climate change impacts, and rising interest rates that make homes less affordable and reduce demand.
The Bottom Line
The House Price Index measures U.S. single-family home price movements, reported monthly with changes from the prior month and year-over-year. It's a key economic indicator that reveals insights into the economy and housing affordability.
