What Is the House Price Index (HPI)?

The House Price Index (HPI) is a broad measure of the movement of single-family house prices in the United States. Aside from serving as an indicator of house price trends, it also functions as an analytical tool for estimating changes in the rates of mortgage defaults, prepayments, and housing affordability.

The House Price Index (HPI) is published by the Federal Housing Finance Agency (FHFA), using data supplied by the Federal National Mortgage Association (FNMA), typically known as Fannie Mae, and Federal Home Loan Mortgage Corp. (FHLMC), commonly known as Freddie Mac.

Key Takeaways

  • The House Price Index (HPI) is a broad measure of the movement of single-family house prices in the United States.
  • It is published by the Federal Housing Finance Agency (FHFA), using data supplied by Fannie Mae and Freddie Mac.
  • The Federal Housing Finance Agency (FHFA) publishes its findings monthly and quarterly.
  • The House Price Index (HPI) is one of many economic indicators that investors use to keep a pulse on broader economic trends and potential shifts in the stock market.

Understanding the House Price Index (HPI)

The House Price Index (HPI) is based on transactions involving conventional and conforming mortgages on single-family properties. It is a weighted, repeat sales index, measuring average price changes in repeat sales or refinancings on the same properties.

Data is compiled by reviewing mortgages purchased or securitized by Fannie Mae and Freddie Mac. The House Price Index (HPI) report is published every quarter—a monthly report has also been published regularly since March 2008.

Advantages of the House Price Index (HPI)

The House Price Index (HPI) is one of many economic indicators that investors use to keep a pulse on broader economic trends and potential shifts in the stock market.

The rise and fall of house prices can have big implications for the economy. Price increases generally create more jobs, stimulate confidence and prompt higher consumer spending. This paves for the way for greater aggregate demand, boosting gross domestic product (GDP) and overall economic growth.

When prices fall, the opposite tends to happen. Consumer confidence is eroded and the many companies profiting from demand for real estate lay off staff. This can sometimes trigger an economic recession.

In June 2019, the House Price Index (HPI) reported that property prices from April 2018 to April 2019 rose 5.2%.

The House Price Index (HPI) vs. S&P/Case-Shiller Home Price Indexes

The House Price Index (HPI) is not the only tracker of home prices. One of the most well-known alternatives is the S&P/Case-Shiller Home Price indexes.

They each utilize different data and measuring techniques and therefore produce varying results. For example, the House Price Index (HPI) weights all homes equally, while S&P/Case-Shiller Home Price indexes are value-weighted.

Moreover, while the Case-Shiller indexes only use purchase prices, the all-transactions House Price Index (HPI) includes refinance appraisals as well. The House Price Index (HPI) also provides wider coverage.

Special Considerations

As already mentioned, the House Price Index (HPI) measures average price changes for homes that are sold or refinanced by looking at mortgages purchased or secured by Fannie Mae or Freddie Mac. That means loans and mortgages from other sources, such as the United States Department of Veterans Affairs and Federal Housing Administration (FHA), do not feature in its data.

Fannie Mae

Fannie Mae is a government-sponsored enterprise (GSE) that is listed on the public market yet operates under a congressional charter. The company's goal is to keep mortgage markets liquid. It does this by purchasing and guaranteeing mortgages from the actual lenders, such as credit unions, and local and national banks—Fannie Mae cannot originate loans directly.

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.

Freddie Mac

Like Fannie Mae, Freddie Mac, or FHLMC, is also a GSE. It purchases, guarantees and securitizes mortgages 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 can borrow money at interest rates that are generally lower than those available to other financial institutions (FIs).