Sep 26, 2012 | Housing Analysis
Tuesday, the Federal Home Finance Agency’s Home Price Index (HPI) showed home values rising 0.2% on a seasonally-adjusted basis between June and July 2012, and moving +3.7% on an annual basis.
Home values have not dropped month-to-month since January of this year — a span of 6 months.
For today’s home buyers and sellers throughout Worcester County area , though, it’s important to recognize on what the HPI is actually reporting.
Or, stated differently, on what the HPI is not reporting. The Home Price Index is based on home price changes of some homes, of certain “types”, with specific mortgage financing only.
As such, it excludes a lot of home sales from its results which skews the final product. We don’t know if home values are really up 0.2% this month — we only know that’s true for the home that the HPI chooses to track.
As an example of how certain homes are excluded, because the HPI is published by the Federal Housing Finance Agency and because the FHFA gets its access to home price data from Fannie Mae and Freddie Mac, it’s upon data these two entities upon which the Home Price Index is built.
Home price data from the Federal Housing Administration (FHA), from local credit unions, and from all-cash sales, for example, are excluded from the HPI because the FHFA has no awareness that the transaction ever happened.
In 2006, this may not have been a big deal; the FHA insured just 4 percent of the housing market at the time. Today, however, the FHA is estimated to insure more than 20% of new home purchases. Furthermore, in August, more than 1 in 4 sales were made with cash.
None of these home sales were included in the HPI.
Furthermore, the Home Price Index excludes certain home types from its findings.
Home sales of condominiums, cooperatives, multi-unit homes and planned unit developments (PUD) are not used in the calculation of the HPI. In some cities, including Chicago and New York City, these property types represent a large percentage of the overall market. The HPI ignores them.
Like other home-value trackers, the Home Price Index can well highlight the housing market’s broader, national trends but for specific home price data about a specific home or a ZIP code, it’s better to talk with a real estate agent with local market knowledge.
Since peaking in April 2007, the Home Price Index is off 16.4 percent.
Aug 28, 2012 | Housing Analysis
The housing market recovery appears to be sustainable.
According to the Federal Housing Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.7 percent between May and June 2012. The index is now up 3.0% over the past 12 months, and made its biggest quarterly gain since 2005 last quarter.
The FHFA’s Home Price Index measures home price changes through successive home sales for homes whose mortgages are backed by Fannie Mae or Freddie Mac, and for which the property type is categorized as a “single-family residence”.
Condominiums, multi-unit homes and homes with jumbo mortgages, for example, are excluded from the Home Price Index, as are all-cash home sales. (more…)
Jul 25, 2012 | Housing Analysis
The housing market’s bottom is 9 months behind us. Home values continue to climb nationwide.
According to the Federal Home Finance Agency’s Home Price Index, home values rose 0.8% in May on a monthly, seasonally-adjusted basis. May’s reading marks the sixth time in seven months that home values rose.
Values are now higher by 4 percent since the market’s October 2011 bottom.
As a Worcester County area home buyer or seller, though, it’s important to understand what the Home Price Index measures. Or, more specifically, what the Home Price Index doesn’t measure.
Although widely-cited, the HPI remains widely-flawed, too. It should not be your sole source for real estate data.
As one example of how the Home Price Index is flawed, consider that the HPI only tracks the values of homes with an associated Fannie Mae- or Freddie Mac-backed mortgages. Homes with mortgages insured by the FHA are excluded, as are homes paid for with cash.
5 years ago, this wasn’t a big deal; the FHA insured just 4 percent of the housing market and cash sales were relatively small. Today, though, the FHA is estimated to insure more than 30% of new (more…)
Jun 29, 2012 | Housing Analysis
The Federal Home Finance Agency’s Home Price Index shows home values up 0.8% in April on a monthly, seasonally-adjusted basis.
April marks the third consecutive month during which home values increased and the index is now up 3 percent from last year at this time.
As a home buyer in Worcester County area , it’s easy to look at the Home Price Index and believe that its recent, sustained climb is proof of a broader housing market recovery. Ultimately, that may prove true. However, we cannot base our buy-or-sell decisions on the HPI because, like the private-sector Case-Shiller Index, the Home Price Index is flawed.
There are three main flaws in the FHFA’s Home Price Index. They cannot be ignored.
First, the FHFA Home Price Index’s sample set is limited to homes with mortgages backed by Fannie Mae or Freddie Mac. By definition, therefore, the index excludes homes with mortgages insured by the FHA. (more…)
May 2, 2012 | Housing Analysis
Home prices started the year on an upswing.
According to the Federal Home Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.3 percent between January and February 2012. The index is up 0.4% over the past year, offering a counter-story to the Case-Shiller Index’s assertion that home values are sinking.
Last week, Standard & Poor’s Case-Shiller Index said home values had dropped more than 3 percent in the prior 12 months.
As a home buyer or seller in Worcester County area , data showing “rising home values” or “falling home values” may be of interest to you, but we can’t forget that most home valuation trackers — including both the government’s Home Price Index and the private sector Case-Shiller Index — have a severe, built-in flaw.
Both used “aged” data. Today, the calendar reads May. Yet, we’re still discussing February’s housing data.
Data that is two-plus months old is of little value to everyday buyers and sellers wanting to know the “right now” of housing. And, even then, characterizing the data as “two-plus months old” may be a stretch. This is because the home values used in the Home Price index and the Case-Shiller Index are collected from actual transactions, but at the time of closing.
Considering that most purchases require 45-60 days to close, we can know that when we look at the Home Price Index and Case-Shiller Index reports for February, what we’re really seeing is a snapshot of the housing market as it existed two-plus month plus 60 days ago.
Data that’s 5 months old is of little relevance to today’s buyers and sellers. Today’s market is driven by today’s economics.
The Home Price Index is a useful gauge for economists and law-makers. It highlights long-term trends in housing which can be helpful in allocating resources to a particular project or policy. For home buyers and seller throughout Massachusetts , though, it’s much less useful. Real-time data is what matters to you.
For that, contact me and I can put you in contact with one of the areas best real estate professionals to talk with.
