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Why housing prices rose to their highest level since April 2008

Phalguni Soni

Why this week’s key releases seem more about expectations (Part 5 of 9)

(Continued from Part 4)

Increasing trend in house prices continues

The Federal Housing Finance Agency (or FHFA) Housing Price Index (or HPI) for January was released on Tuesday, March 25. U.S. house prices increased 0.5% in January, compared to a revised 0.7% increase in December, on a seasonally adjusted basis, ahead of consensus estimates of 0.4%. This represents the 23rd month in the last two years that the HPI has recorded an increase. The seasonally adjusted index level of 209.14 is the highest since April 2008. The HPI last declined 0.1% in November 2013. On a year-over-year basis, the HPI increased 7.4%—marginally down from January’s 7.5% increase. The Pacific region recorded the largest year-over-year increase at 14%, while the Mid-Atlantic region recorded the lowest year-over-year increase at 3.2%.

What is the Federal Housing Finance Agency (or FHFA) Housing Price Index (or HPI)?

The 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 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 that 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.

We’ll discuss another housing market price index, the S&P Case-Shiller Home Price Index, that was released Tuesday and compare the two Indices in the next part of this series. We’ll also discuss the impact of housing price increases on housing sector ETFs like the State Street SPDR Homebuilders ETF (XHB) and homebuilders like DR Horton (DHI) and Toll Brothers (TOL). Increasing home prices are likely to affect ETFs with exposure to the mortgage market, like the Vanguard Mortgage-Backed Securities Index Fund (VMBS) and the iShares Barclays MBS Fixed-Rate Bond Fund (MBB).

To find out more, read on to Part 6 of this series.


Continue to Part 6

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