New Monthly Index Is All About Housing

Dec 2, 2015

Initiated in September, a new monthly housing index from Fannie Mae’s Economic & Strategic Research (ESR) Group gives industry professionals a good indication of the housing market’s direction based on consumers’ views.

“The Home Purchase Sentiment Index™ (HPSI) delivers statistically meaningful insights into the next 12 months for key housing market indicators, including house prices, home sales volume, total single-family housing starts, and the volume of purchase mortgage originations,” says Steve Deggendorf, who leads survey research for ESR.

Unlike indexes such as those from the University of Michigan and the Conference Board, HPSI is “devoted entirely to housing,” Deggendorf adds. And it is easy to follow because it boils consumer views — on housing markets and their own finances — down to a single number that assesses current performance and probable future behavior.

The HPSI is based on data from Fannie Mae’s National Housing Survey™ (NHS), which was started in mid-2010 when the economy was still under the shadow of the Great Recession. Back then, many in the industry had unanswered questions about the underpinnings of the recovering housing market, such as how people regarded homeownership in the aftermath of surprisingly large declines in home prices and increases in mortgage delinquencies and defaults.

Month after month, for more than five years, ESR has asked 1,000 consumers a list of about 100 questions, gathering 100,000 data points each month. The ESR team eventually saw an opportunity to distill the large amount of NHS data into a single monthly housing indicator, which would become HPSI.

The challenge for the two individuals working on HPSI — Qiang Cai, an ESR statistician, and James Wilcox, a professor at Berkeley’s Haas School of Business — was to identify the NHS data that would best suit this purpose. The two winnowed the long list of NHS questions down to six, asking if it’s a good time to buy a home, a good time to sell, the expected direction of house prices over the next 12 months, the expected direction of mortgage rates in the next 12 months, concerns over job security in the coming year and a comparison of current monthly household income with income a year earlier.

The creators of HPSI are pleased with the results, which have provided statistically meaningful insights into housing activity over the past few years as it has slowly gained ground.

The index has drawn attention from the media and the housing industry. It also recently received recognition from the National Association for Business Economics (NABE), which gave Wilcox its Edmund A. Mennis Award for his paper on HPSI. (Fannie Mae Chief Economist Doug Duncan and the ESR forecast team won NABE’s Outlook Award for the most accurate forecast of the year.)

For more information on the HPSI, please visit our website.

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