Market Forecast: FHFA House Price Index, Existing Home Sales, and New Home Sales

• January 22, 2018

Mortgage rates trended upward last week, reacting to the end-of-year rate hike.  This week, the Federal Housing Finance Agency (FHFA) releases its house price index.  The existing home sales report comes out on Wednesday and the new home sales report comes out Thursday.

The FHFA house price index tracks the changes in value of homes financed through conventional mortgages securitized by Fannie Mae and Freddie Mac.  The data excludes homes financed through government-sponsored loans like the VA and FHA loans.  Though the data lags by one month and surveys a smaller sample than the Case-Shiller home price index, it is used to evaluate home price appreciation trends.  In October, the index appreciated 0.5% month-over-month and 6.6% year-over-year.  Home prices have steadily increased as limited inventory creates a competitive buying market.

Existing home sales or resales track the sales of previously constructed homes and make up the majority of real estate transactions.  In November, existing home sales increased 5.6% month-over-month and 3.8% year-over-year to a seasonally adjusted annual rate of 5.810 million.

The new home sales report tracks changes in the sales of newly constructed homes.  In December, new home sales saw unprecedented gains, up 17.5% month-over-month to a seasonally adjusted annual rate of 733,000.  This record figure was the fastest pace in over 25 years. 

Zillow senior economist, Aaron Terrazas explained, “the market is starving for new homes, but it won’t be easy for builders struggling with high and rising land, labor, and lumber costs.” 

One demographic hit particularly hard by limited inventory is first-time home buyers.  There is a lack of starter homes available, with Baby Boomers choosing to stay in their homes longer leaving Generation X homeowners stuck in their starter homes.  New home construction has not yet been able to satisfy the demand for starter homes, since builders are opting to build more profitable larger and luxury homes.  

Sources: Bloomberg, CNBC, MarketWatch, Mortgage News Daily