Learn something new every day
More Info... by email
In the United States, a House Price Index, or HPI, is a measurement of price changes on single-family homes over a specific period of time. Using information gained from top mortgage lenders, this index is an indicator of whether prices for mortgages — both for new buyers and those refinancing on their current homes — are rising or falling. The House Price Index can also be used to show the levels of loan defaults and the overall affordability of house prices within the U.S. It is a tool best used in conjunction with other economic factors to gain the proper picture of the housing market.
When people decide to buy a new home, they must get all of the pertinent information regarding current price levels in order to make a realistic bid. Prices on a local level are often affected by the national housing picture. For that reason, consumers in the United States need some sort of overview of the housing market before they set forth to see if they can afford a mortgage loan. The House Price Index is an effective tool for that very purpose.
Computing the House Price Index requires information from large institutional lenders whose loans comprise a majority of the mortgages taken out to buy homes in the U.S. These lenders, FANNIE MAE® and FREDDIE MAC®, take information from certain major cities and pass along information regarding housing prices as well 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 in comparison to previous levels. For this reason, it is known as a Chain Price Index. As an example, if it is computed monthly, the current HPI would be judged in terms of the levels from the previous month. Rates of change between the two months would give an indication of whether prices were rising and falling. Since the HPI is formed in this manner, it gives potential home-buyers a context for the market they are about to enter.
Of course, housing prices are often reflective of the broader economic climate. For that reason, it is wise for those studying the housing market to judge the House Price Index in connection with other economic factors. Nationwide interest rates will often have a high impact on the housing market, since these rates are often the basis for the rates offered by mortgage lenders. In addition, inflation rates should be studied to see how they stack up against rising or falling home prices.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!