House prices in the United States rose by 1.6% in the second quarter of the year. This is according to the House Price Index (HPI) report by the Federal Housing Finance Agency (FHFA). That’s an increase of 6.6% from the second quarter of last year.
According to FHFA Senior Economist William Doerner, a significant increase is seen in most states. He says, “New home sales are climbing but, relative to the overall population, they still remain low from a historical perspective. The tight inventory is a major explanation for why house prices have been increasing every quarter over the last six years.”
The U.S. house price increase is calculated through information from mortgages sold to or guaranteed by Freddie Mac and Fannie Mae. Key highlights of the increase are also mentioned from a video report for this quarter from the FHFA.
BREAKING DOWN THE STATISTICS
According to the report, the top five states that showed a major house price increase are the states of Washington with a 12.4% increase, followed by Colorado at 10.4%, Idaho at 10.3%, Florida at 9.4%, and Utah at 9.2%.
Rounding up the 100 largest metropolitan areas in the country, the greatest increase was in Seattle-Bellevue-Everett, Washington (15.7%) and the weakest increase in New Haven, Milford, Connecticut (0.1%).
On census divisions, the Pacific demonstrated the strongest increase of 2.6% in quarter two of this year and 8.9% increase from quarter two of last year. The weakest rise, however, is in the Middle Atlantic division which only posted a 0.8% increase.
ABOUT THE HOUSE PRICE INDEX
By definition, the House Price Index or HPI reports the quarterly movement of single-family home prices in the United States. It measures price changes either in repeat sales or refinancings. This pieces of information are obtained by mortgage transactions on these single-family residences purchased or secured from Fannie and Freddie since 1975.
The detailed, quarterly HPI report is released approximately two months after the end of the previous quarter. Revisions are done every quarter for three reasons. First, the HPI is based on the estimates of appreciation in repeated values of the same property. Second, the GSEs purchase seasoned loans and this brings new information from the previous quarters. Finally, there is a 30-45 day lag which brings new data a month after the last month of the quarter.
THE EFFECT OF HOUSE PRICE INCREASES
In an article from the World Economic Forum back in 2015, there are macroeconomic effects from changes in house prices. It was reported that along with a house price hike, retail products can also lead to an increase which ultimately affects consumers.
And as house prices continue to rise, affordability and demand would plummet. That could show a low demand for home purchases. On the other side of the spectrum, the supply side of the housing market would continue to encourage higher home prices.
In connection, Forbes reported towards the end of 2016 that rising rates can complicate this year’s housing outlook. As the rising trend continues to roll, responses definitely varied from panic, resilience, or optimism. This would also affect millennials who are looking to buy their first home.
Most don’t have enough money saved to buy a home and a lot are having a difficult time in qualifying for a mortgage. And with the seemingly continuing increase of house values, they might be driven farther away from the American dream.