FHFA House Price Index: Index Up 1.4% in Q3

The Federal Housing Finance Agency (FHFA) has released its U.S. House Price Index (HPI) for September and Q3. Here is the opening of the report:

Washington, D.C. – U.S. house prices rose 1.4 percent in the third quarter of 2017 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 6.5 percent from the third quarter of 2016 to the third quarter of 2017. FHFA’s seasonally adjusted monthly index for September was up 0.3 percent from August.

The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. FHFA has produced a video of highlights for this quarter.

“With relatively favorable economic conditions and a continued shortage of housing supply, price increases in the third quarter were generally robust and widespread,” said Andrew Leventis, Deputy Chief Economist. “At some point, declining housing affordability should temper appreciation rates in some of the nation’s fastest appreciating markets, but our third quarter results show few signs of that.” [Link to report]

The chart below illustrates the monthly HPI series, which is not adjusted for inflation, along with a real (inflation-adjusted) series using the Consumer Price Index: All Items Less Shelter.

House Price Index

In the chart above we see that the nominal HPI index has exceeded its pre-recession peak of what's generally regarded to have been a housing bubble. Adjusted for inflation, the index remains off its historic high.

The next chart shows the growth of the nominal and real index since the turn of the century.

HPI Growth since 2000

For an interesting comparison, let's overlay the HPI and the most closely matching subcomponent of the Consumer Price Index, Owners' Equivalent Rent of Residences (OER). Note: For an explanation of OER, see this PDF commentary from the Bureau of Labor Statistics.

HPI versus OER

HPI and OER moved in close parallel from the 1991 inception date of the former until early 1999, when the two parted company and HPI began accelerating into the housing bubble. HPI then fell 20.7% over the next 48 months to its March 2007 trough. Confirmation of the "bubble" designation for house prices is the 40.1% spread between HPI and OER in January 2006.

Is another housing bubble forming? The current spread is 22.1%.

Here we compare the Consumer Price Index for All Urban Consumers to both the Nominal and Real House Price Index, which is a similar comparison to what we do in our Case-Shiller update. Nominal HPI growth has clearly taken off since 2012. However, when adjusted for inflation, the House Price Index has not seen as dramatic an increase since the late 1990s.

HPI versus OER