The Flawed Home Price Index Shows Home Values Up 0.8 Percent
Last week, the Case-Shiller Index reported home values up 0.8 percent across 20 tracked markets. The public-sector Federal Housing Finance Agency has reached a similar conclusion.
Reporting on a two-month lag, the government’s Home Price Index shows home values up 0.8 percent in April, buoyed by the expiring federal home buyer tax credit and low mortgage rates. It’s a positive signal for a recovering housing market.
But just because the Home Price Index says home values are rising, that doesn’t mean they are. The Home Price Index methodology is flawed on multiple fronts.
First, the Home Price Index reports on a 60-day delay. This two-month lag turns the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for direction, HPI won’t give it to you — you’ll have to get that analysis from your real estate agent.
Second, HPI only accounts for home values in which the home’s attached mortgage is backed by Fannie Mae or Freddie Mac. As the FHA market share grows, fewer homes get included in the HPI sample set, and HPI values may be skewed high or low.
And, third, HPI doesn’t account for new home sales — only repeat ones. This, too, eliminates a major segment of the market.
All of that said, though, the Home Price Index remains important to housing. It’s still the most comprehensive home valuation model in print and it’s been giving strong readings since the start of year. You can’t ignore that on any level.
It’s July and you may have missed the “rock bottom” home prices from earlier in the year, but homes are still relatively inexpensive. Couple that with all-time low mortgage rates and home affordability looks excellent. Consider making an offer while the terms are right.
Related posts:
- The Home Price Index Shows Home Values Lower Broadly, But Not Specifically
- The Home Price Index Shows That Home Values Increased In May
- The Home Price Index Shows Home Values Increasing. Case-Shiller Agrees.
Michael Haigh has 20+ years of professional experience in the banking and mortgage industry. He has the knowledge, education, and dedication to get you the best loan for your situation, answer your questions honestly and completely, and make your mortgaging experience a pleasure. His reputation includes being the number one lender in the country for CitiBank for 9 years, then at Chase for 1 year and now with WJ Bradley since August of 2009. This is because of the quantity of loans, myriad of people he's helped, and his dedication to helping his clients find the perfect loan for them.
