The Federal Housing Finance Agency Housing Price Index reports higher home prices in March
The Federal Housing Finance Agency Housing Price Index for March was released on Tuesday, May 27. This release also included quarterly data comparisons for Q1 2014. Home prices increased by 0.7% month-over-month in March, compared to 0.6% in February. The increase spurred the monthly HPI to its highest level since March 2008. Price gains were broad-based, with eight out of the nine reporting census regions recording an increase. Excluding the East South Central Region, all other regions reported an increase, with New England posting the highest monthly increase (at 4.6%). Home prices in the Pacific region rose the most since last year (at 12.44%).
“Although the first quarter saw relatively weak real estate transaction activity—in part due to seasonal factors—home prices continued to push higher in the first quarter,” said FHFA Principal Economist Andrew Leventis. “Modest inventories of homes available for sale likely played a significant role in driving the price increase, which was similar to appreciation in the preceding quarter.”
The supply imbalance drove price increases that should prove beneficial to homebuilders. The iShares US Home Construction ETF (ITB) invests primarily in U.S.-based home construction companies. The top ten holdings in ITB include homebuilders Toll Brothers (TOL) and D.R. Horton (DHI).
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What is the Federal Housing Finance Agency Housing Price Index?
The Federal Housing Finance Agency Housing Price Index (or FHFA HPI) is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. The index measures the change in the prices of single-family houses in various geographies in the U.S. It also helps to estimate changes in the rates of mortgage defaults, prepayments, and housing affordability in specific geographic areas. The HPI is a weighted repeat sales index, meaning it measures average price changes in repeat sales or re-financings on the same properties.
The index is updated monthly using data provided by Fannie Mae and Freddie Mac. The House Price Index is based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac and includes only mortgage transactions on single-family properties. “Conforming” refers to a mortgage that both meets the underwriting guidelines of Fannie Mae or Freddie Mac and doesn’t exceed the conforming loan limit.
There are significant differences between the Case-Shiller Home Price Index and the FHFA House Price Index. To find out about the major differences, please see the Market Realist series, Why this week’s key releases seem more about expectations.
Key takeaways from the March release
The next two parts of this series will cover manufacturing indicators released by the Federal Reserve Banks of Dallas and Richmond. Please read on.