The Home Price Index (HPI) in the US measures changes in single-family home prices and is based on data from major lenders. It can indicate if mortgage prices are rising or falling, show loan default levels, and overall affordability. The HPI is best used with other economic factors to understand the housing market. It is measured against previous levels and should be considered in relation to national interest rates and inflation rates.
In the United States, a home price index, or HPI, is a measure of changes in the price of single-family homes over a specific period of time. Using information obtained from leading mortgage lenders, this index is an indicator of whether mortgage prices are rising or falling, for both new buyers and those refinancing their current homes. The Home Price Index can also be used to show loan default levels and overall affordability of homes in the United States. It is a tool that is best used in conjunction with other economic factors to get a correct picture of the housing market.
When people decide to buy a new home, they need to get all the relevant information about current price levels in order to be able to make a realistic offer. Local prices are often influenced by the national housing situation. For this reason, consumers in the United States need some sort of overview of the housing market before they start to see if they can afford a mortgage loan. The House Price Index is an effective tool for just this purpose.
The calculation of the home price index requires information from large institutional lenders whose loans comprise the majority of home loans in the United States. These lenders, FANNIE MAE and FREDDIE MAC, take information from a few major cities and broadcast information on home prices as well as the number of refinances and foreclosures. From this information, the HPI is calculated and updated on a semi-regular basis.
It is important to understand that the house price index is always measured against previous levels. For this reason, it is known as the Chain Price Index. For example, if calculated monthly, the current HPI would be judged in terms of the previous month’s levels. The rates of change between the two months would give an indication of whether prices were rising or falling. Because the HPI is formed this way, it gives potential home buyers context for the market they are about to enter.
Of course, home prices often reflect the broader economic climate. For this reason, it is wise for those who study the housing market to judge the house price index in relation to other economic factors. National interest rates will often have a major impact on the housing market, as these rates are often the basis for the rates offered by mortgage lenders. Also, inflation rates should be studied to see how they stack up against rising or falling house prices.
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