The House Price Index (HPI) is a wide indicator of single-family home price movements in the United States. It serves as an analytical tool for estimating changes in mortgage defaults, prepayments, and housing affordability, in addition to functioning as an indication of home price trends.
The House Price Index: A Basic Overview (HPI)
The Federal Housing Finance Agency (FHFA) creates the HPI by combining data from the Federal National Mortgage Association (FNMA), also known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac.
The HPI is based on single-family home mortgage transactions using conventional and conforming loans. It's a weighted repeat sales index that calculates average price changes in repeat sales or refinancings on the same properties.
Every quarter, an HPI report is released, however, since March 2008, a monthly report has been released monthly. Fannie Mae and Freddie Mac collect data by looking at mortgages they have purchased or securitized.
How Does the House Price Index (HPI) Work?
The HPI is one of many economic indicators used by investors to track broader economic trends and prospective stock market moves.
The economy can be impacted significantly by changes in housing values. Price hikes typically result in more jobs, more consumer confidence, and increased expenditure. This boosts GDP and overall economic growth by increasing aggregate demand.
When prices drop, the opposite is more likely to occur. Consumer confidence is eroding, and many real estate-related businesses are laying off workers. This can occasionally lead to a downturn in the economy.
The S&P CoreLogic Case-Shiller Home Price Indexes vs. the House Price Index (HPI)
The HPI isn't the only way to keep tabs on real estate prices. S&P CoreLogic Case-Shiller Home Price Indexes are one of the most well-known alternatives.
These indices use a variety of data and measurement methods, resulting in a wide range of outcomes. The HPI, for example, gives equal weight to all homes, whereas the S&P CoreLogic Case-Shiller Home Price indexes give value to each home.
Furthermore, unlike Case-Shiller indexes that only consider purchase prices, the HPI incorporates refinance appraisals as well. In addition, the HPI has a broader scope.
Freddie Mac and Fannie Mae are two of the most well-known mortgage companies in the United States.
The HPI, as previously stated, looks at mortgages purchased or secured by Fannie Mae or Freddie Mac to calculate average price changes for homes that are sold or refinanced. That means it does not include loans and mortgages from other sources, such as the US Department of Veterans Affairs and the Federal Housing Administration (FHA).
Fannie Mae is a financial institution that was founded in the United
Fannie Mae is a publicly-traded government-sponsored enterprise (GSE) that is governed by a congressional charter. The company's mission is to keep the mortgage markets afloat. Fannie Mae accomplishes this by purchasing and guaranteeing mortgages from legitimate lenders, such as credit unions and local and national banks—it is unable to originate loans itself.
By establishing a secondary market, the FNMA increases mortgage market liquidity and makes house ownership more accessible to low-, moderate-, and middle-income Americans. During the Great Depression, Fannie Mae was established as part of the New Deal in 1938.
Freddie Mac, commonly known as the FHLMC, is a government-sponsored enterprise (GSE), similar to Fannie Mae. It buys, guarantees, and securitizes mortgages to create mortgage-backed securities (MBS) (MBS). It then issues liquid MBS with credit ratings that are similar to those of US Treasury bonds.
Freddie Mac can borrow money at lower interest rates than other financial companies because of its ties to the US government.
1. The House Price Index (HPI) is a wide indicator of single-family housing price movement in the United States.
2. The Federal Housing Finance Agency (FHFA) publishes it using Fannie Mae and Freddie Mac data that is provided regularly and quarterly.
3. The HPI is one of many economic indicators used by investors to track broader economic trends and prospective stock market moves.