Wednesday, December 31, 2008

Pick Your Home Price Index: Comparing the HPI with the Case-Schiller Index

The S&P/Case-Schiller Home Price Index has been released for October. The monthly percentage changes in the 10-metro composite (CSXR) and the 20-metro composite (SPCS20R) from July 2007 are illustrated in the accompanying figure. The graph also contains the same data for the monthly housing price index (HPI) published by the Federal Housing Agency.

Note that the declines have been much greater in the Case-Shiller indexes. These indexes are based on the paired repeat sales of single-family homes. The indexes include the sale of homes that were financed with subprime loans and homes sold in foreclosure. The FHA housing price index (HPI) is also based on repeat sales. However, it only includes the sale of homes backed by Fannie Mae or Freddie Mac, a subset of the homes in the Case-Schiller indexes. The HPI does not include the sale of homes backed by subprime financing that fell outside of FHA guidelines. The forced sale of these homes may explain why the Case-Schiller indexes have declined more than the HPI. It has been incorrectly reported that the HPI does not include the sale of foreclosed properties. The FAQ at the FHA website indicates that these sales are included.
Transactions that merely represent title transfers to lenders will not appear in the data. Once lenders take possession of foreclosed properties, however, the subsequent sale to the public can appear in the data. As with any other property sale, the sales information will be in FHFA’s data if the buyer purchases the property with a loan that is bought or guaranteed by Fannie Mae or Freddie Mac.

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