The Federal Housing Finance Agency releases a monthly quarterly home price index (the HPI) reporting on home price changes at both the national and census division level. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or re-financings on the same properties. This information is obtained by reviewing repeat mortgage transactions on federally securitized single-family properties. The HPI is updated each quarter as additional mortgages are purchased or securitized by Fannie Mae and Freddie Mac. Since the index tracks federally guaranteed mortgages so does not reflect mortgage transactions greater than $625,000 in value in high cost urban areas and $417,000 in most other areas.
According to these FHFA, home prices nationally increased by 0.1 percent between June and July 2014. In the past year, prices are up by 4.4 percent far surpassing the rate of inflation, with prices in the Pacific and Mountain regions up by 7.2 and 5.8 percent respectively. Price increases were slightly below inflation in the Middle Atlantic region of the country. Since the FHFA House Price Index, measures the costs of homes outside of expensive urban centers, these increases likely do not reflect booming market areas like Denver, San Francisco, Seattle or New York City, so overall home price increases are likely higher.
Looking at the index over time, the effects of the housing bubble in the latter part of the past decade is obvious. Remembering that this does not even reflect prices in the most expensive urban markets, price increases during the five years prior to the bubble were increasing at annual rates of between 7 and 10 percent. In the past two years, prices are again starting to rise to these levels, though in the last quarter price increases have started to moderate.
As the CPI discussion above shows, housing costs reflect about a third of the overall market basket of goods and services purchased by consumers. The fact that the CPI has not been rising along with home prices reflects the moderating effect that the manufacturing process has had on overall goods prices over the past few years. With wage growth flat to moderate it is unlikely that home prices can continue to increase at a faster rate than the overall economy for long. If this trend does continue, it is a sure sign of another asset bubble.
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