Let's face it America, the last few years have been wilder than most in recent history. We've seen nations rise and fall, but until the pandemic of 2020, I've never seen the world shut down. The impossible became possible. And Home Price Appreciation (HPA) quite literally 'went through the roof.'
The Root Causes Behind America’s House Price Appreciation
Another aspect of our nation's reaction to the global shutdown were historical interest rate drops followed by a dash of home seekers with cash equity and wherewithal to purchase new homes. Those that could afford it moved or prudently refinanced their homes loans.
Exhibit III-1 above provides a historical overview of FHA forward mortgage endorsements by purpose and the aggregate original mortgage balance of endorsed mortgages, for each of the last 22 fiscal years. In FY 2022, FHA endorsed 982,202 home mortgages through its forward mortgage program, of which 70 percent were purchase mortgages. Of these purchase mortgages, over 83 percent were for first-time homebuyers. The original mortgage amount of all endorsed forward mortgages, including both purchase and refinance mortgages, in FY 2022 totaled $255.51 billion, down from $342.82 billion in FY 2021. The average forward mortgage amount of FHA endorsements in FY 2022 was $260,137, an increase of 8.7 percent from the FY 2021 average of $239,256. Annual Report of Congress Regarding the Finacial Status of the Housing Administration Mutual Mortgage Insurance Fund FY 2022
The laws of supply and demand met the fear of missing out on previously unheard of interest rates.
Rapid HPA growth is the most significant driver. As suggested by Exhibit E-10, below, average house prices have increased by 73 percent over the last six years, with the most significant appreciation occurring over the last two years. As HPA cools due to macro-economic factors, the MMI Capital Ratio is not likely to grow in future years at anything close to the same rate, and in fact may decline. Annual Report of Congress Regarding the Finacial Status of the Housing Administration Mutual Mortgage Insurance Fund FY 2022
U.S. Department of Housing and Urban Development (HUD): House Price Appreciation FY 2017-2022
The Annual Report of Congress Regarding the Finacial Status of the Housing Administration Mutual Mortgage Insurance Fund reveals the profound and rapid house price appreciation from 2020-2022!
It doesn't take a math wizard to see the obvious. What was normal HPA became extraordinary.
According to the Federal Housing Finance Agency (FHFA), which publishes the House Price Index (HPI) in the US, the average annual increase in the HPI between 1975 and 2020 was approximately 4.8%.
From 2017-2020, the HPA rose by 19.07%.
From 2020 to 2022, the HPA rose on average by 48.2%.
The Home Price Index (HPI) and House Price Appreciation (HPA) are both used to measure changes in home prices over time, but they have some key differences.
HPI: Broad measure of the movement of home prices.
HPA: Specific measure of the percentage change in a home's price over a given period of time.
The HPI is a broad measurement of the movement of single-family home prices, calculated as an index based on the weighted average of various geographic regions. The index typically starts at 100, which represents the benchmark price at a specific point in time, and then shows changes in price relative to that benchmark.
On the other hand, HPA is a specific percentage increase or decrease in the price of a home over a period of time, typically on an annual basis. HPA can be calculated for individual homes or for a broader market.
Want to learn more about the state of America's housing markets?
Read the full report: https://www.hud.gov/sites/dfiles/Housing/documents/2022FHAAnnualRptMMIFund.pdf
If you'd rather not read all 129 pages of the report. Call email or subscribe! Let's make the impossible possible.
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