For the last few months, you may have been seeing the HPSI (Home Purchase Sentiment Index) being published. If you don’t know what it is, or how to use it, that’s not so surprising, as it’s a very new metric. Fannie Mae just started releasing HPSI data in September (with last August being their first release). The intent behind the HPSI is for it to become a predictive indicator of home buying behavior. Of course, with only having had it for less than a year, it’s still quite early to judge its success; however, having a single metric can be a useful guide for planning short-term strategies.
The metric itself is a consolidation of six metrics that Fannie Mae considers key to the question at hand, from their broader National Housing Survey:
- Is it a good time to buy a house?
- Is it a good time to sell a house?
- Will home prices go up or down over the next 12 months?
- Will mortgage interest rates go up or down over the next 12 months?
- Are you concerned with losing your job?
- Is your household income significantly higher or lower than it was 12 months ago?
As you can see from the questions, the S in HPSI is quite prominent, with only one question not being an expression of sentiment. The data is based on surveys of 1,000 household “financial decision makers”. The good news is, with a number that size, the data should be statistically significant for the country. The bad news is, the sample is too small to make reasonable, regional metrics available (e.g., for us to have a Washington Housing Sentiment Index). But even if we could get local numbers, the real questions remain:
- How good of a predictor is the HPSI?
- What should we do about it?
I would argue that it’s too early to tell if the HPSI is a useful predictor of future behavior, but if we assume that it is, then I think you can include it in your strategic planning. For example, if you’re a residential real-estate agent, and you see that the sentiment has been declining for a few months in a row, then perhaps you can start migrating your focus from single-family homes to investment properties; or if the drop is precipitous enough, maybe even to commercial real estate. Of course, each person in the industry will need to make his own decisions; still, the number is worth considering.
Also, it’s worth noting that when the HPSI is released each month, Fannie Mae provides a “data release” which shows exactly what the movement was in each of the key questions (and sometime a few other related questions from the broader survey). It’s worth diving into the next level of detail before you start making any strategic decisions.
The HPSI for March, 2016, is 80.2 — which continues a slight downward trend from May of 2015, but is still well above what it was four years ago, around 60 in late 2011. Every month, you can get the latest HPSI data directly from Fannie Mae.