House Price Index (HPI)

What is the HPI?

The House Price Index (HPI) measures changes in single‑family home prices across the United States. Published by the Federal Housing Finance Agency (FHFA), it serves as a broad indicator of housing-market trends and helps inform mortgage analysis, housing affordability assessments, and economic forecasts.

How the HPI is measured

• Data source: Transactions involving conventional, conforming mortgages purchased or securitized by Fannie Mae and Freddie Mac.
• Methodology: A weighted repeat‑sales index that tracks price changes on the same properties over time, including purchase prices and refinancing appraisals.
• Frequency: FHFA releases monthly and quarterly reports that show short‑ and long‑term price movements.
• Coverage limits: The index excludes mortgages from other sources (for example, VA and FHA loans), so it reflects the conventional conforming mortgage market.

How the HPI is used

• Economic indicator: Changes in house prices affect consumer confidence, employment in construction and real estate services, household wealth, and aggregate demand—factors that influence GDP.
• Mortgage market analysis: Lenders and investors use HPI trends to estimate default and prepayment risks and to value mortgage‑backed securities.
• Policy and planning: Policymakers and researchers use HPI data to monitor regional housing conditions and to design housing finance programs.

HPI vs. S&P CoreLogic Case‑Shiller

• Coverage and transactions:
• HPI: All‑transactions index (includes refinancings) and treats homes more equally.
• Case‑Shiller: Purchase‑price based and value‑weighted (gives more weight to higher‑priced homes).
• Resulting differences: The two indexes can show different short‑term and regional patterns because of their data sources and weighting schemes. Users choose between them depending on whether they want broader transaction coverage (HPI) or a price‑weighted measure tied to purchase activity (Case‑Shiller).

Role of Fannie Mae and Freddie Mac

• Fannie Mae and Freddie Mac are government‑sponsored enterprises that buy, guarantee, and securitize conventional mortgages, creating liquidity in the secondary mortgage market.
• Because the FHFA HPI uses mortgages these GSEs purchase or securitize, the index effectively reflects the market for conventional conforming loans rather than the entire universe of U.S. mortgage transactions.

Practical guidance for buyers and sellers

How to tell if a house is a good price
* Compare recent sale prices of similar homes (comps) in the neighborhood.
* Review current listings and time on market.
* Consult a local real estate agent for market context and appreciation expectations.

Should you offer the full asking price?
* Depends on market conditions:
* Seller’s market: you may need to offer the full asking price or more to be competitive.
* Buyer’s market: there is more room to negotiate below asking price.
* If competing offers are likely, some buyers add 1–3% (or adjust according to local norms) to increase their chances.

What lowers a house’s value?
* Local factors: new undesirable development (e.g., highways), a cluster of nearby foreclosures, or declining neighborhood conditions.
* Environmental and long‑term risk: higher exposure to natural disasters or climate vulnerability.
* Higher interest rates: increase borrowing costs, reducing buyer demand and downward pressure on prices.

Conclusion

The FHFA House Price Index is a key measure of single‑family home price movement in the conventional mortgage market. Its repeat‑sales, all‑transactions approach and use of Fannie Mae/Freddie Mac data make it a reliable indicator of broad housing trends. Tracking HPI movements helps investors, lenders, policymakers, and homebuyers assess market health, mortgage risks, and the economic implications of rising or falling home prices.