The Federal Housing Finance Agency (FHFA) has released its U.S. House Price Index (HPI) for July. Here is the opening of the press release:

​Washington, D.C. – House prices rose nationwide in July, up 1.0 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI). House prices rose 6.5 percent from July 2019 to July 2020. FHFA also revised its previously reported 0.9 percent price change for June 2020 to 1.0 percent.

For the nine census divisions, seasonally adjusted monthly house price changes from June 2020 to July 2020 ranged from +0.6 percent in the West North Central division to +2.0 percent in the New England division. The 12-month changes ranged from +5.4 percent in the West South Central division to +7.7 percent in both the Mountain and the East South Central divisions.

“U.S. house prices posted a strong increase in July," said Dr. Lynn Fisher, FHFA's Deputy Director of the Division of Research and Statistics. “Between May and July 2020, national prices increased by over 2 percent, which represents the largest two-month price increase observed since the start of the index in 1991. The dramatic increase in prices this summer can be attributed to the historically low interest rate environment and rebounding housing demand even as the supply of homes for sale remains constrained."

The chart below illustrates the monthly HPI series, which is not adjusted for inflation, along with a real (inflation-adjusted) series using the Consumer Price Index: All Items Less Shelter.

(Click on image to enlarge)

In the chart above we see that the nominal HPI index has exceeded its pre-recession peak of what's generally regarded to have been a housing bubble. Adjusted for inflation, the index is now at 164.5, also at its all-time high.

The next chart shows the growth of the nominal and real index since the turn of the century.

(Click on image to enlarge)

For an interesting comparison, let's overlay the HPI and the most closely matching subcomponent of the Consumer Price Index, Owners' Equivalent Rent of Residences (OER). Note: For an explanation of OER, see this PDF commentary from the Bureau of Labor Statistics.

(Click on image to enlarge)

HPI and OER moved in close parallel from the 1991 inception date of the former until early 1999, when the two parted company and HPI began accelerating into the housing bubble. HPI then fell 20.7% over the next 48 months to its March 2007 trough. Confirmation of the "bubble" designation for house prices is the 40.1% spread between HPI and OER in January 2006.

Is another housing bubble forming? The current spread is 29.4%.

Here we compare the Consumer Price Index for All Urban Consumers to both the Nominal and Real House Price Index, which is a similar comparison to what we do in our Case-Shiller update. Nominal HPI growth has clearly taken off since 2012. However, when adjusted for inflation, the House Price Index has not seen as dramatic an increase since the late 1990s.

(Click on image to enlarge)