House Price Index (HPI): Defined And Explained

You’re ready to buy a home, but you’d prefer to purchase a residence in a neighborhood in which housing values are rising. Or maybe you’re an investor and you’d like to buy a residence right before housing values explode. The House Price Index – or HPI – can help.

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

What Is HPI In Real Estate?

The Federal Housing Finance Agency (FHFA) compiles the HPI, releasing 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 in real estate markets across the United States.

Investors like the HPI because it can help them identity parts of the country in which home values are on the rise. Home buyers might also turn to the HPI to identity neighborhoods in which prices are steadily rising, giving them the opportunity to purchase before these prices rise even higher.

And sellers? They can use the HPI to help set their asking prices when listing their homes, making sure they set a price that will deliver them the most value without pricing their properties too high for an area.

How Is The HPI Used?

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.

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. Sellers can use HPI numbers to calculate the right listing price, one high enough to earn them the most profit and not so high that it scares buyers away.

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

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.

Maybe you’re an investor looking for the best deal. 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 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.

FHFA House Price Index Calculator

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

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 — a suburb of Chicago — you’d choose the Chicago-Naperville-Evanston MSA on the HPI calculator page.

You 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 that 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 tell you how much it estimates your home is now worth and how much its value might have risen since you bought it.

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

House Price Index FAQs

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 housing 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 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 are an investor, you might want to buy in a city in which the HPI is falling. You might be able 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 are a buyer, buying in an area in which the HPI is dropping means you might get a home for a lower price. If you are selling, you might want to hold onto your home until housing values are again rising in your neighborhood. Be careful, though: Just because the HPI in your area shows falling prices doesn’t mean that 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 are buying or selling. If you are selling, listing a home when the HPI is rising means you might nab a better price for it. But if you are 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.

The Bottom Line

The HPI can help you determine whether housing values in a market are on the rise. HPI, though, 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. If you are a home buyer, seller or investor studying the HPI in your market, contact us to apply for a mortgage today.