This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at Advisor Perspectives/VettaFi.
The Federal Housing Finance Agency (FHFA) has released its U.S. house price index (HPI) for December. U.S. house prices decreased by 0.1% from the previous month. Year-over-year the index is up 6.6% on a non-seasonally adjusted nominal basis. After adjusting for inflation and seasonality, the index is up 0.1% in December and up 0.6% year-over-year (seasonally adjusted).
Here is the opening of the press release:
Washington, D.C. – U.S. house prices rose 8.4 percent between the fourth quarters of 2021 and 2022, according to the Federal Housing Finance Agency (FHFA) House Price Index (FHFA HPI®). House prices were up 0.3 percent compared to the third quarter of 2022. FHFA’s seasonally adjusted monthly index for December was down 0.1 percent from November.
“House price appreciation continued to wane in the fourth quarter” said Dr. Polkovnichenko, Supervisory Economist in FHFA’s Division of Research and Statistics. “House prices grew at a much slower pace in recent quarters amid higher mortgage rates and a decline in mortgage applications. These negative pressures were partially offset by historically low inventory.”
The House Price Index is a measure of the change in prices of single-family homes, using data from Fannie Mae and Freddie Mac. It helps to analyze the strength of the US housing market by watching the rise and fall of prices. As prices increase so does consumer confidence. Conversely, as prices decrease, consumer confidence declines as well.
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.

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

For an interesting comparison, let's overlay the HPI and the most closely matching sub-component of the CPI, owners' equivalent rent of residences (OER). OER measures how much monthly rent that would have to be paid in order to substitute a currently owned house as a rental property.

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 21.2% over the next 48 months to its March 2011 trough. Confirmation of the "bubble" designation for house prices is the 39.3% spread between HPI and OER in January 2006.
Are we in another housing bubble? The current spread is 54.2%, exceeding the "bubble designation" just mentioned. This is just below its all-time peak of 63.3% which occurred in May 2022.
Here we compare the CPI for all urban consumers to both the nominal and real house price index, which is a similar comparison to what I 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.

ETFs associated with residential real-estate include: iShares Residential and Multisector Real Estate ETF (REZ).
For additional perspectives on residential real estate, here is the complete list of our monthly updates:
Read more updates by Jen Nash