A house price index or HPI is a measure of the prices which houses are bought and sold for over a period of time. House price indices may cover a country, region, state, or city, and are normally adjusted seasonally due to the fluctuation of transactions throughout the year. Quality adjustment is equally crucial if accuracy in HPIs is to be attained, especially since dwellings will vary according to location and building quality.
House price indices may use data from a number of different sources which include different bits of data collected at various points in time. These may include legal paperwork, formal registration of title, mortgages, or sales listings.
Many house price indices include only narrow market segments and in some countries, it is impossible to find any formal data on house prices, for instance, Japan. In Australia, only house prices for major cities are measured, and a good number of eastern and central European countries only measure prices of new properties. In such countries, the price behaviour of the new homes is different from that of existing dwellings, and house price indices only cover a handful of cities.
It serves as an indicator of trends in house prices and provides a tool for analysing and estimating changes in the rates of house affordability, prepayments, and mortgage defaults in specific geographic areas.
A house price index can show areas where the values of houses are rising and falling, making it a useful tool for estimating prices. With adequate assistance from a lender, it can help prospective buyers decide if a particular point in time is a good time for buying a new house. Financial analysts and economists often use HPIs to monitor long-term trends and gauge events in the property market.
In the UK, mortgage-providers produced HPIs since the early 1970s, with government bodies joining them later. Government house price indices include the one by the Office for National Statistics, the Land Registry HPI, one by the Department of Communities and Local Government (DCLG), and an HPI that used to be produced by the Department for Environment.
The Office for National Statistics releases a monthly HPI which is calculated using transactions collected through the Council of Mortgage Lenders’ Regulated Mortgage Survey. It provides data on the change in house prices and provides analysis by the type of house, the type of buyer, and the region.
Calnea Analytics calculates the Land Registry House Price Index for HM Land Registry using the land registry’s data which includes information on home sales in Wales and England. The HPI uses Repeat Sales Regression and separates sales from auctions and repossessions.
The DCLG House Price Index uses the mix-adjusted method to calculate indices based on weighted averages. The HPI uses mortgage transaction data provided by a number of large lenders.
Private house indices such as Halifax House Price Index and the Nationwide House Price Index use their own data compiled from mortgage lending to calculate indices which have a longer time-series than government HPIs.
The Federal Housing Finance Agency (FHFA) produces a house price index which measures average price changes in re-financings or repeat sales on the same properties as it is a weighed, repeat-sales index. The HPI covers house prices for all American states and the District of Columbia, for the Metropolitan Statistical Areas (MSAs) and Divisions, and for the nine Census Bureau divisions. Due to the scope of their sample, the FHFA’s HPI presents more data than is obtainable from other house price indexes.
The FHFA produces their HPI using information from Freddie Mac and Fannie Mae. The agency reviews transactions involving conforming and conventional mortgages only on single-family houses with mortgages which have been bought or securitized by Freddie Mac or Fannie Mae since January 1975. The FHFA HPI reports are published quarterly with monthly reports which have been published since 2008.
The FHFA HPI does not consider mortgages and loans from the Federal Housing Administration, the VA, or any other federal program, doesn’t account for new construction, apartments, or condos, and the HPI is not as specific as other indices. Other than the quarterly HPI from the FHFA, there are other house price indices published in the United States including the FNC Residential Price Index and the CoreLogic Case-Shiller Indexes.
The residential price index by private mortgage technology company, FNC, is created using recent property appraisals, public records, and statistics on individual property and neighbourhoods. It spans across the top 100 metro areas, provides tracking on the zip code level, and places emphasis on various types of single-family homes. Since the RPI provides a varied array of statistics, it is possible to track multiple trends, from price changes for different house types to trends in specific regions.
The Case-Shiller index by U.S. financial information company, CoreLogic, tracks repeat sales of houses like the FHFA’s HPI, except that it goes beyond taking simple averages and makes monthly comparisons based on the number of houses sold. While these indices don’t provide as much coverage as the FHFA HPI, they provide more accurate information on market changes.
It is difficult to compare house price inflation between countries because more often than not, the methods for estimating house price indices differ from country to country. Where comparisons across countries must be made, it is important to consider the general direction of change when checking sources, as detailed differences don’t hold much meaning.
For a long time, there was no way to compare national data on housing prices within the European Union. Since 2002, Eurostat and member governments have been working together to create a system to provide synchronised data for European residential property prices. Eurostat has now started publishing house price indices from across the European Union. The Eurostat HPI considers both existing and new properties, and focuses on market prices while non-market prices are excluded.