What's Next in the Housing Market?

Fannie Mae Publishes a New Leading Economic Indicator

By Larry R. Anweiler, ABD
Full-Time Faculty 
 
Published January 2016

During the Great Depression, government understood the importance of the housing market and its impact on the economy of the United States, the job market, and finances of individuals. During this time the Roosevelt administration not only stepped in to support the banking industry, and create jobs through work programs, but also started the Federal Housing Administration (FHA) to spur activity within the housing industry.   

With the recession that started in 2007 and the sluggish recovery of the economy since that time, the housing market reinforced the assessment that housing has an important impact on the job market, the financial sector, and the rest of the national economy. To better understand consumer attitudes within the housing industry, Fannie Mae worked to create an index that would track these attitudes as they relate to the housing market. As a beginning measure, Fannie Mae started by creating a National Housing Survey (NHS) to produce information about the public’s attitudes in the areas of housing and financial conditions.  

Beginning mid-2010, and each month from the date of launch, Fannie Mae’s Economic & Strategic Research (ESR) Group sent out 1,000 surveys to consumers that contained 100 questions, and identified 100,000 data points for study. This information was later distilled into a single monthly housing indicator. 

Fannie Mae began publishing the new index starting September 2015, and focused on the attitudes, intentions, and financial conditions in the consumer housing market by sampling consumer attitudes. Known as the Home Purchase Sentiment Index (HPSI), the survey now focuses its questioning to consumers on the following six areas: 

  • Is it a good time to buy?
  • Is it a good time to sell? 
  • What will be the direction of housing prices over the next 12 months? 
  • What will be the direction of mortgage rates over the next 12 months? 
  • To what degree are you concerned about job security over the next year? 
  • How will your monthly income over the next year compare to last year? 

The new index has been found to be very accurate in predicting housing trends over a preceding 12 month period. The lead researchers have received awards from the National Association for Business Economics (NABE) and a NABE Outlook Award for the most accurate forecast for the year. James A. Wilcox from the University of California at Berkeley and Fannie Mae’s Chief Economist Doug Duncan were the lead researchers who developed the index.   

This new index is designed to improve understanding of the housing market and economic forecasting and can be used by both the general public and residential investors to make better real estate decisions. Before any purchase or sale of residential real estate, investors should consult this index to make better investment decisions. 

Larry R. Anweiler is a professor at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.



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