FHFA House Price Index Rises 0.8% in July

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The Federal Housing Finance Agency (FHFA) house price index (HPI) continued its climb in July, coming in at 409.5. U.S. house prices increased by 0.8% from the previous month and by 4.6% from one year ago. After adjusting for inflation, the real index is up 0.8% month-over-month and up 3.4% year-over-year.

Here is the quote from the press release:

“U.S. house prices continued to appreciate in July, consistent with the trend observed over the last several months.” said Dr. Nataliya Polkovnichenko, Supervisory Economist in FHFA’s Division of Research and Statistics. “Regionally, all nine census divisions posted positive price appreciation over the last 12 months, although the Pacific and Mountain divisions experienced only modest growth.”

FHFA House Price Index

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 both the nominal HPI and real HPI indexes have surpassed their peaks from 2022 and now sit at their all-time highs. Both have exceeded their pre-recession peaks of what's generally regarded to have been a housing bubble, for the past several years.

The next chart shows the growth of the nominal and real index since the turn of the century. The nominal index has grown 198.7% since 2000 while the real index has grown 75.3%.

House Price Index vs. Owners' Equivalent Rent of Residences

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. At which point the two parted company and HPI began accelerating into the housing bubble. HPI then fell 21.2% over the next 48 months to its 2011-2012 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 spread has been widening since January 2023 and is currently at 55.0%, exceeding the "bubble designation" just mentioned. The spread was the widest in May 2022 at 62.1%.

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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 been increasing at a much slower rate.

ETFs associated with residential real-estate include: iShares Residential and Multisector Real Estate ETF (REZ).

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 VettaFi | Advisor Perspectives

For additional perspectives on residential real estate, here is the complete list of our monthly updates: