Conventional Mortgage Home Price Index

What does "CMHPI" mean?

The acronym "CMHPI" stands for Conventional Mortgage Home Price Index. The computation of the index is based on mortgages that were purchased or securitized by Freddie Mac or Fannie Mae since January 1975. These mortgages are "conventional" in their financing: they are not insured or guaranteed by any federal government agency such as the Federal Housing Administration or Veterans Administration. Although not specified in the name, the index is based on mortgages for single unit residential houses only; it does not reflect condominiums, multi-family or commercial properties. Finally, the mortgages are "conforming": at the time of purchase they met Freddie Mac or Fannie Mae underwriting standards, and they did not exceed the allowable loan limit set for the two companies. The conforming loan limit is revised each year based on a Federal Housing Finance Board survey. The 2005 loan limit is $359,650 except for mortgages originated in Alaska, Hawaii, Guam and the US Virgin Islands, where it is $539,475. Home loans above this dollar limit are called "jumbos"; the CMHPI does not reflect such homes.

How does the CMHPI work?

The CMHPI uses a statistical method based entirely on "repeat transactions". Any time a house's value is observed twice over time (via either a sale or an appraisal), the change in the price contributes one observation of house price growth over that time period. The index is defined to be the statistically determined set of values that most closely fits many such repeated observations. Mathematically, this is equivalent to taking complicated weighted averages of all the observations of house price growth.

For a more technical description of the method, please see the the article from the Journal of Housing Research 6(3):389-418 (1995) titled "Conventional Mortgage Home Price Index1,” and the Journal of Housing Economics article "Estimating House Price Growth with Repeat Sales Data: What's the Aim of the Game?"

How large is the repeat transactions database that the CMHPI is based on?

As of the current release, the combined Freddie Mac-Fannie Mae database contains more than 28 million of these "matched pairs".

When or how often is the CMHPI released?

New index figures are released about 2 months after the end of every quarter.

Are the values in the CMHPI ever revised?

Yes. Due to the nature of the statistical method used, revisions occur every time the CMHPI is released. The index values are essentially huge weighted averages. One property that averages have is that any time new observations are added, the average changes. As a result, each quarter when new index figures are computed, the values for all previous quarters may change. These revisions are not "corrections" in the usual sense (say, for seasonal effects), but rather reflect the variable nature of averages.

How long has the CMHPI been in production?

Freddie Mac and Fannie Mae jointly developed the CMHPI and began releasing it in the first quarter of 1994.

How different are the CMHPI and OFHEO's HPI?

For most purposes, the differences are immaterial. OFHEO is the Office of Federal Housing Enterprise Oversight, Freddie Mac and Fannie Mae's safety and soundness regulator. In 1996 OFHEO began publishing a data series referred to as the House Price Index (HPI). OFHEO uses the same joint database of Freddie Mac and Fannie Mae repeat transactions as a starting point and employs essentially the same statistical method used to calculate the CMHPI. As a result, differences between the CMHPI and OFHEO's HPI are extremely small relative to the differences between either index and the various other house price indices that are publicly available.

Why is Freddie Mac extending the series back to 1970?

As technology has developed, our ability to match loan transactions has improved and the quality of the data has improved with better systems. Because of this, Freddie Mac now believes that we can provide a national index that extends back an additional five years, which enables researchers and others interested in housing market information to assess the impacts of an additional business cycle on home values. This information is important because between 1970 and 2002 there have only been five recessions and housing is so important to the economy.

Why aren't the regional series also being extended back to 1970?

While the sample size used to calculate the national series is sufficient for reasonable statistical robustness, the sample sizes get too small when the data are divided by Census division. For this reason, Freddie Mac has decided to extend only the national sample.

Why did Freddie Mac change its definition of metro areas for the MSA series?

The Office of Management and Budget (OMB) defines metropolitan and micropolitan statistical areas for purposes of collecting, tabulating, and publishing Federal data. Metropolitan and micropolitan statistical area definitions result from applying published standards to Census Bureau data. In June 2003 the U.S. Census Bureau released new metro area definitions in accordance with the 2000 Decennial Census data to replace the standard metropolitan area definitions that had been based on the 1990 Decennial Census. Software vendors have recently made geocoding software available with the new definitions. More details of the OMB bulletin can be found at the following web site:

Starting with the 2Q 2005 release of the CMHPI Freddie Mac has decided to use the new metropolitan area definitions for its MSA series – however, a micropolitan series will not be made available due to data samples that are too small for statistical robustness in those areas. Publishing the MSA series using the new metropolitan area definitions will allow researchers to match these data to other data series now being published under the new OMB definitions.

The new MSA index series file has 350 metropolitan areas and 29 metropolitan divisions (smaller areas within larger metro areas). Freddie Mac is also making available a separate file with indices for the 11 large metropolitan areas from which the 29 metropolitan divisions are obtained (e.g., the metro area of Washington DC-MD-VA-WV was subdivided into two metro area divisions of Bethesda-Frederick-Gaithersburg MD and Washington-Arlington-Alexandria DC-MD-VA-WV) with a mapping between the divisions and their respective metro area.





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