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 fell nationwide in July, down 0.6 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices rose 13.9 percent from July 2021 to July 2022. The previously reported 0.1 percent price increase in June 2022 remained unchanged.

For the nine census divisions, seasonally adjusted monthly house price changes from June to July 2022 ranged from -1.6 percent in the Pacific division to +0.1 percent in the East North Central division. The 12-month changes were all positive, ranging from +10.0 percent in the Pacific division to +18.9 percent in the South Atlantic division.

“U.S. house price index posted its first month-over-month decrease in July since May 2020 when the U.S. economy experienced lockdowns as a result of COVID-19. This decline was widespread as eight of the nine census divisions saw a decrease,” said Will Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics. “The 12-month change in house prices remains at historically high rates, but the rate of growth continues to moderate across all census divisions.”

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.

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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 190.6, just below its all-time high.

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

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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.

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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 39.4% spread between HPI and OER in January 2006.

Are we in another housing bubble? The current spread is 63.2%, exceeding the "bubble designation" just mentioned.

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.

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