The Federal Housing Finance Agency (FHFA) house price index (HPI) continued to increase in September, coming in at 414.8. U.S. house prices increased by 0.6% from the previous month and by 6.1% from one year ago. After adjusting for inflation, the real index is up 0.4% month-over-month and up 4.0% year-over-year.
Here is the quote from the press release:
“U.S. house price growth continued to accelerate in the third quarter, appreciating more than in each of the previous four quarters,” said Dr. Anju Vajja, Principal Associate Director in FHFA’s Division of Research and Statistics. “House prices rose in the third quarter in all census divisions and are higher than one year ago, driven primarily by a low supply of homes for sale.”
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. The nominal and real HPI indexes are both currently sitting at their all-time highs.
The next chart shows the growth of the nominal and real index since the turn of the century. The nominal index has grown 202.6% since 2000 while the real index has grown 75.6%.
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 55.5%, exceeding the "bubble designation" just mentioned. The spread was the widest in May 2022 at 61.9%.
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).
For additional perspectives on residential real estate, here is the complete list of our monthly updates:
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