What does the HPI or housing price changes mean to you?

You can read almost daily about housing prices going up or down and even conflicting reports. The long-term standard published by the government's FHFA since the 70's is called the HPI - or House Price Index - but what does that mean for you?

The HPI, or House Price Index, is basically an average of how housing prices in your state have moved over time.  So, let's say you bought a home 5 years ago for a great deal - $100.  On that date the HPI would be 100 representing 100% of the price of your home (nothing changes day 1 so it is 100%).  Let's say you look today and your state's HPI calculation shows your value to be $95.  That means the overall index has dropped 5% over the past 5 years (that is, housing prices in your state have on average dropped 5%).  

This index typically will go up and down every quarter, so it is something to follow if you expect or are thinking about moving in the near future (think seasonality too).  A small quarterly dip could impact your ability to sell and move on to your next home.  It's especially important today.  It used to be that people bought a home and expected to live there for 40 years.  The modern homebuyer is changing that paradigm looking for a home BUT with greater flexibility and control to sell as they see fit.  That doesn't always exist today which is why many still choose to rent (even though homes are much more affordable).

This chart below shows how a purchase in California would be affected by HPI changes over the past decade and how those changes would impact their home prices and potential ability to sell.  For every year in the 2000's, this chart shows how the HPI would have changed over 3, 5 and 7 years.  So, if you bought a home in 2005, for example, what the HPI would be if you sold in 2008, 2010 and 2012.  Anything below 100 is a loss in housing sales price (aka bad).

In 5 out of the 10 years, Californians would have lost value in their homes on average.  Worse, almost half saw losses greater than 15% with the worse losing 45% of their homes value (if you bought in 2006 and sold in 2011, you would have been able to sell on average 55% of what you paid for it 5 years earlier).   There were really good years too, but the pendulum did swing.

There are many ways to slice and dice this.  This is just one example.  It's also admittedly an extreme example but perhaps not as much as you think.  You wouldn't think that Connecticut, with it's big homes and allure with NYC professionals, would be down, yet it still hasn't fully recovered from the housing crisis almost 10 years.  Add to the fact that 2 major employers are looking to leave, you can expect prices to be impacted in some way.  So, if you are the best homeowner with the perfect home and you really take care of it, you could still lose value in your home because an employer or two pull thousands of jobs or some other big thing happens that had nothing to do with you.  That's why we created down payment protection - to give you back that control allowing you to sell when you want to not when you can.  

If you have long-term plans to stay in one place 30 or 40 years, it may not be as impactful, but if you are looking for more mobility, it is something to really look at.