This Federal Housing Finance Agency (FHFA) research paper examines the history of House Price Index (HPI) revisions over the recent national boom-bust cycle in house prices. The paper is part of FHFA’s ongoing effort to enhance public understanding of the nation’s housing finance system. The paper was prepared by Jesse Weiher of the Office of Policy Analysis and Research. Andrew Leventis, Robert Seiler, and Robert Collender provided valuable comments.
Each Federal Housing Finance Agency (FHFA) House Price Index (HPI) release revises previous estimates of house price appreciation contained in previous releases (Box A provides a primer on how FHFA estimates and revises the HPI). This paper examines the history of those revisions over the recent national boom-bust cycle in house prices. Using information from quarterly HPI releases since the fourth quarter of 2004 and monthly releases since December 2007, the paper constructs an “unrevised” HPI series consisting of the initial estimates for each quarterly and monthly index level. For example, the unrevised HPI value for the first quarter of 2005 is equal to the HPI value for that quarter published in the first quarter 2005 release. The paper compares those unrevised HPI series to the most current HPI release, which is the third quarter of 2009 and September of 2009 for the quarterly and monthly releases, respectively. In June of 2005, one of FHFA’s predecessor agencies, the Office of Federal Housing Enterprise Oversight (OFHEO), published a short examination of revisions to the HPI.1That research examined revisions to the HPI in a rapidly increasing price environment and found that revisions in appreciation rates from one quarter to the next tended to increase those rates. The current house price downturn is the first significant decline since OFHEO began production of the HPI in 19962 and offers a unique opportunity to examine whether revisions to the HPI have tended to amplify or dampen the estimated cycle.
The analysis in this paper reveals patterns in the revisions of the announced house price appreciation rates from one period to the next. Specifically, in the current housing cycle, from the first quarter of 2005 through the most recent (third) quarter of 2009, revisions of the HPI tended to increase estimated one-period appreciation rates when prices were rising during the boom and to reduce them after prices began to decline in the bust. At the same time, HPI revisions have moved the level of the index in the opposite direction, decreasing the index value when prices were rising and increasing the index value as prices have fallen. Further, since the level of the HPI reflects estimated house price appreciation since the base period, revisions have tended to moderate longer-term appreciation rates relative to unrevised.
