What Is The House Price Index, And What Is It Used For?

6 Min Read

Updated Nov. 5, 2024

FACT-CHECKED

Written By

Dan Rafter

You’re ready to buy a home, but you’d prefer to purchase a residence in a neighborhood where housing values are rising. Or maybe you’re an investor and you’d like to buy a home right before housing values explode. The House Price Index – or HPI – from the Federal Housing Finance Agency (FHFA) can help.

What Is HPI In Real Estate?

The HPI is a tool on the FHFA’s website that measures the rise and fall of home values across the United States. It’s a useful resource for investors hoping to buy homes, sell them and make a profit. But it can also help you target a neighborhood where home values are generally rising, which can be important if you want to build equity in any home you buy.

The FHFA compiles the HPI using home sale data from Fannie Mae and Freddie Mac and releases it every month. The agency also publishes a quarterly version of the HPI. The index measures the changes in the values of single-family homes purchased with conforming mortgages in real estate markets across the United States.

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What Is HPI Used For?

Buyers, sellers and investors can analyze HPI data over time to determine whether home values in different parts of the United States are on the way up or down. These individuals can use these house price trends for a number of purposes.

For Investors

Real estate investors can use this information to determine how likely it is that their investments in single-family homes will pay off. They can then determine what price – and how much of a mortgage – is most likely to provide them with a profit.

Or maybe you’re an investor looking for the best deal on a house flip. You might find cities in which values had been falling but are now slowly rising again. This could give you the chance to buy in an up-and-coming neighborhood before house prices rise too high. Once you renovate the home, and as values keep rising, you might be able to charge a higher price when you’re ready to sell.

For Home Sellers

Sellers can use HPI numbers to calculate the right asking price. They’ll use the tool’s data to set an asking price high enough to earn them the most profit and not so high that it scares buyers away.

For Home Buyers

HPI information can help home buyers too. By analyzing the home values in the areas where they want to buy, buyers can boost their chances of paying a fair, but not inflated, price for their new home.

Want to analyze the HPI data for a particular city? You can check the information for the country’s major cities, and their surrounding areas, in the HPI’s list of largest cities. You can use these numbers to determine if prices are rising in the cities in which you most want to live.

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What Is The FHFA House Price Index Calculator?

The FHFA’s HPI calculator is a tool you can use to determine how much your own home might have jumped in value since you purchased it. Let’s walk through how the tool works:

Once you log on, you’ll enter the state in which your residence sits. You can then choose one of the metropolitan statistical areas available for that state. If you don’t see your specific community, choose the larger MSA in which your village, city or town lies. For instance, if you lived in Oak Park, Illinois, you’d choose the Chicago-Naperville-Evanston MSA on the HPI calculator page.
Then enter in which quarter you bought your home. If you bought in August of 2016, for instance, you’d choose the “2016 Quarter 3” option. Next, choose the quarter for which you want to estimate your home’s current value, usually the most recent the HPI has available. You might choose, for instance, the second quarter of 2022 for the valuation quarter.
Enter the purchase price of your home when you bought it and then click the “Calculate” button. The HPI calculator will give you an estimate of how much your home is worth now and how much its value might have risen since you bought it.

Be careful though: The HPI calculator is providing you with an estimate. You’ll need to work with a real estate professional or get a home appraisal for a more accurate value for your property.

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House Price Index FAQ

Questions about the HPI and how it works? Here are some answers.

How is the HPI calculated?

The Federal Housing Finance Agency relies on housing data from all 50 states and 400 cities in creating its HPI. The index is a repeat-sales index, measuring average price changes from the repeat sales of homes or the appraised value of these properties when their mortgages are refinanced.

Why is the HPI calculated using mortgage data from Fannie Mae and Freddie Mac?

Congress created Fannie Mae and Freddie Mac to provide liquidity in the mortgage market. The agencies buy mortgages from lenders and either hold them or sell them as mortgage-backed securities. Fannie and Freddie are the largest guarantors of mortgage loans in the country. Because of this, they can provide the FHFA with plenty of housing information that it can use in its HPI reports.

What should I do if the HPI drops?

That depends. If you’re an investor, you might want to buy in a city where the HPI is falling to get a home for a lower price. Then, when prices rise again, you might be able to sell your investment for a larger profit.
If you’re a buyer, buying in an area where the HPI is dropping means you might get a home for a lower price. If you’re selling, you might want to hold onto your home until housing values are again rising in your neighborhood. But just because the HPI in your area shows falling prices doesn’t mean the home you want to buy or sell is also losing value. Individual homes can increase in value even if the larger HPI is falling.

What should I do if the HPI rises?

Again, this depends on whether you’re buying or selling. If you’re selling, listing a home when the HPI is rising means you might nab a better price for it. But if you’re buying in a market in which the HPI is rising, you might have to pay more for your home. Again, don’t let the direction of the HPI determine whether you buy or sell. Make these moves because it’s the right time for you, not only because the HPI is on the rise.

Are there other housing price indexes?

Another housing price index tool is called the S&P CoreLogic Case-Shiller Home Price Indices. This online tool also measures housing price trends, but it sources its data from county recorder’s and assessor’s offices. It also doesn’t factor in refinance appraisals like the HPI does. More importantly, the Case-Shiller Index values more expensive homes more heavily than cheaper ones. All of these differences can lead to contrasting results.

The Bottom Line

The HPI can help you determine whether housing values in a market are on the rise. However, HPI is only one tool that can tell you whether this is a good time to buy or sell a home. Other factors – such as whether your family is growing, you’re moving for a new job or you’re ready to downsize – should play a role in your decision too.