The Federal Housing Finance Agency (FHFA) house price index (HPI) unexpectedly declined to 424.5 in June, just below the all-time high of 424.8 from the previous month. U.S. home prices were down 0.1% from the previous month and are up 5.1% from one year ago.The forecast showed U.S. home prices increasing 0.1% from the previous month. After adjusting for inflation, the real index was up 0.1% month-over-month and up 3.3% year-over-year.
Here is the quote from the press release:
“U.S. house prices saw the third consecutive slowdown in quarterly growth,” said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics. “The slower pace of appreciation as of June end was likely due to higher inventory of homes for sale and elevated mortgage rates.”
FHFA House Price Index
The FHFA 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 HPI is currently 0.09% below its all-time high from May 2024 while the real HPI is currently at its all-time high.
The next chart shows the growth of the nominal and real index since the turn of the century. The nominal index has grown 209.8% since 2000 while the real index's growth is much lower, at 78.4%.
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 39.2% spread between HPI and OER in January 2006.
Are we in another housing bubble? The spread is currently at 53.1%, exceeding the "bubble designation" just mentioned. The spread was the widest in May 2022 at 61.1%.
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).
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