FHFA And Case-Shiller Home Price Indices: What's The Difference?

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Includes: BBRE, CLAW, DRA, DRN, DRV, FREL, FRI, FTY, HOML, IARAX, ICF, ITB, IYR, JRS, KBWY, LRET, NAIL, NRO, PKB, PPTY, PSR, REK, RFI, RIF, RIT, RNP, RORE, RQI, RWR, SCHH, SRS, URE, USRT, VNQ, WREI, XHB, XLRE
by: Bespoke Investment Group

Two home price indices were released on Tuesday: the S&P CoreLogic Case-Shiller and the FHFA House Price Index (sometimes referred to as HPI). These indicators both measure moves in home prices, but subtle differences in the methodologies with which each are calculated can result in variations between the two.

Both indices track the value of homes across the US using a repeat sales methodology. This essentially looks only at the prices of only existing single-family homes (multi-family homes and new constructions are excluded) that have been bought/sold at least twice. This way of indexing home prices helps to control for a property's qualities - such as the size or style of house - that could affect the price.

While both CoreLogic's Case-Shiller and FHFA use this type of Case-Shiller methodology, FHFA uses a slightly modified version. FHFA's version of the house price index weights homes with long periods of time between sales differently than those with shorter time spans between sales. Both indices give less weight to a sale after ten years, but FHFA penalize them more than Case-Shiller. Additionally, FHFA weights all homes equally. Case-Shiller is value-weighted, meaning price trends for higher valued homes tend to have more of an impact on the index.

The way in which data is collected and organized is the other major differentiating factor. S&P CoreLogic uses local government assessor and records offices to get the valuation of homes. FHFA, on the other hand, uses the value of mortgages bought by either Fannie Mae or Freddie Mac. This removes refinancing appraisals that are picked up in the Case-Shiller data. Unfortunately, it fails to include a variety of mortgages, such as subprime and VA loans. The FHFA breaks out state and regional prices with a lot more granularity; unlike Case-Shiller, it offers versions for census regions and states, while the Case-Shiller version only offers 20 metros and a national composite.

As you can see in the charts below, both indices closely follow each other. The most recent release has once again reaffirmed weakness in the housing market. The Case-Shiller Index for August has fallen to its lowest level since March 2010, sitting at 0.16% MoM SA. While mean home values are still appreciating, this trend downwards is the closest to depreciating home values that we have been seen in several years. As evident in the chart below, the Case-Shiller Index has been falling on a MoM SA basis for almost a year now. Despite a short uptick, the FHFA has pretty much been in the same boat.

This picture is only slightly rosier when looking at year-over-year seasonally adjusted data. We are nowhere close to home values depreciating, but it does appear that both indices are beginning to change their slight uptrend. Once again, this is nothing new for housing data, which has been on a rough run of late. Existing home sales missed estimates last week, while mortgage applications, new home sales, and pending home sales are all on the calendar this week. Perhaps, that will offer a brighter picture.