House Price Index (HPI)

The House Price Index or HPI is a broad measure of the movement of single-family house prices in the United States. Apart from serving as an indicator of house price trends, the House Price Index provides an analytical tool for estimating changes in the rates of mortgage defaults, prepayments, and housing affordability. The HPI is published by the Federal Housing Finance Agency (FHFA), using data supplied by Fannie Mae and Freddie Mac.

The House Price Index is based on transactions involving conventional and conforming mortgages on single-family properties. Fannie Mae or Freddie Mac has purchased or securitized these mortgages. The HPI is a weighted, repeat-sales index, which means that it measures average price changes in repeat sales or refinancings on the same properties. A comprehensive HPI report is published every quarter, while a monthly report has been published regularly since March 2008.

The HPI differs from the well-known S&P/Case-Shiller Home Price Indexes in a number of ways. For example, while the Case-Shiller indexes only use purchase prices, the all-transactions HPI also includes refinance appraisals.

The House Price Index is based on transactions that Fannie Mae (Federal National Mortgage Association or FNMA) has completed. As a government-sponsored enterprise or GSE, Fannie Mae is a publicly traded company yet operates under a Congressional charter. It cannot originate loans directly; however, Fannie Mae’s goal is to keep mortgage markets liquid overall. It does this by purchasing and guaranteeing mortgages from the actual lenders (e.g., credit unions, and local and national banks). FNMA expands the liquidity of mortgage markets and facilitates homeownership for low-, moderate-, and middle-income Americans by creating a secondary market. Fannie Mae was created in 1938 during the Great Depression as part of the New Deal.

Like Fannie Mae, Freddie Mac or the Federal Home Loan Mortgage Corp (FHLMC) is also a government sponsored enterprise. Freddie Mac purchases, guarantees and securitizes mortgages in order to form mortgage-backed securities. It then issues liquid mortgage-backed securities that generally carry a credit rating close to that of U.S. Treasuries. Given its connection with the U.S. government Freddie Mac is able to borrow money at interest rates that are generally lower than those available to other financial institutions.

Economic indicators fall into three broad categories: leading indicators, coincident indicators and lagging indicators. Examples across categories include the consumer price index (CPI), gross domestic product (GDP), unemployment figures, crude oil prices, and the house price index. Economic indicators allow investors to keep pulse on broader economic trends and potential shifts in the stock market.