Notice of Establishment of Housing Price Index, 63996-64000 [2015-26778]
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[FR Doc. 2015–26938 Filed 10–21–15; 8:45 am]
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BILLING CODE 6715–01–P
FEDERAL HOUSING FINANCE
AGENCY
[No. 2015–N–10]
Notice of Establishment of Housing
Price Index
AGENCY:
Federal Housing Finance
Agency.
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On May 27, 2015, the Federal
Housing Finance Agency (FHFA)
published a Notice and Request for
Input (Notice) describing a method for
assessing the national average singlefamily house price for use in adjusting
the maximum conforming loan limits of
Fannie Mae and Freddie Mac (the
‘‘Enterprises’’). The Notice responded to
section 1322 of the Federal Housing
Enterprises Financial Safety and
Soundness Act of 1992 (12 U.S.C. 4501
et seq.) (‘‘Safety and Soundness Act’’)
which required FHFA to ‘‘establish and
maintain a method of assessing the
national average 1-family house price
for use in adjusting the conforming loan
limitations.’’ The Notice indicated that
FHFA intends to use its existing
‘‘expanded-data’’ house price index
(HPI) for such purpose and invited
public feedback.
In line with the proposal in the
original Notice, after reviewing the
public feedback, FHFA has decided to
use the expanded-data HPI for annual
loan-limit adjustment. Specifically,
FHFA will use the seasonally adjusted,
expanded-data HPI for the United
States.
DATES: Effective Date: October 22, 2015.
FOR FURTHER INFORMATION CONTACT:
Questions about the expanded-data HPI
and the implementation of the
conforming loan limit rules can be
addressed to Andrew Leventis,
Principal Economist, 202–649–3199,
Andrew.Leventis@fhfa.gov, or Jamie
Schwing, Associate General Counsel,
202–649–3085, Jamie.Schwing@
fhfa.gov, (not toll-free numbers), Federal
Housing Finance Agency, 400 Seventh
Street SW., Washington, DC 20024.
SUPPLEMENTARY INFORMATION:
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
AGENCY:
Final notice.
A. Background
The ‘‘Notice of the Establishment of
Housing Price Index’’ that FHFA issued
in May 1 announced that the agency
intended to use its expanded-data HPI
for the purpose of satisfying section
1322 (12 U.S.C. 4542) of the Safety and
Soundness Act.2 Section 1322 requires
FHFA to ‘‘establish and maintain’’ a
house price index that tracks the
average U.S. home price. May’s Notice
detailed FHFA’s rationale for the choice
of the expanded-data index over other
measures. The Notice discussed the
advantages and disadvantages of several
metrics and outlined the various
1 See
80 FR 30237 (May 27, 2015).
1124(d) of the Housing and Economic
Recovery Act of 2008 (HERA), 122 Stat. 2693,
amended the Safety and Soundness Act to include
this section.
2 Section
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considerations FHFA found most
compelling in choosing the index.
Identifying the seasonally adjusted,
expanded-data HPI for the U.S. as the
selected index, the Notice invited public
input and provided for an input period
that extended through July 27, 2015.
This Final Notice summarizes the input
submissions received and responds to
questions and concerns that were raised
in the submissions.
B. Overview of Input Submissions
Received
FHFA received a total of 20
submissions in response to the Notice.
Submissions were received from private
citizens, trade associations, a think tank,
and one private company. Twelve of the
submissions did not address the issue
on which input had been requested: the
appropriateness of the chosen home
price measure. In most cases, these
submissions opined on the desirability
of having higher conforming loan limits,
rather than FHFA’s choice of index.
In general, the eight responsive
submissions were favorable to FHFA’s
proposed use of its expanded-data index
for loan limit adjustment. Most
submissions supported the basic
underlying methodology used in the
index construction and appreciated the
breadth of the data sample used in
forming the index. More generally,
submitters agreed that reliance on an
agency-produced measure (as opposed
to a privately produced index) would be
beneficial in that it would ensure
continued publication of the reference
index. They also concurred with
FHFA’s belief that its control over the
reference index would ensure that
undesirable modifications to
methodology would not be made (as
might happen if the agency relied on an
external measure of home prices).
Five of the eight responsive
submissions were generally supportive
of the use of the expanded-data index
as-is. The remaining three did not object
to the use of the expanded-data index,
but suggested modifications to the
process or augmentations. In particular,
the proposed adjustments recommended
the use of multiple price indexes and,
in one case, the consideration of other
mortgage market factors.
For the purpose of summarizing and
addressing the responsive submissions
received, this Final Notice divides them
into two groups: ‘‘Supportive’’ and
‘‘Other.’’ This classification is for
convenience; as will be clear in the
discussion, responses in both categories
were not uniform. For instance, in some
cases, the ‘‘Supportive’’ submissions
included questions or expressed modest
concerns. Meanwhile, the ‘‘Other’’
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submissions often included strong
praise for certain characteristics of
FHFA’s proposal.
C. Discussion of the Five Responsive
‘‘Supportive’’ Submissions
1. Summary
Three of the five ‘‘supportive’’
submissions were wholly in agreement
with the proposed use of the expandeddata index for tracking the average U.S.
home price. None of the three, which
were all submitted by trade associations,
provided any material criticism. They
expressed strong support for FHFA’s
choice and, to varying degrees, the
principles FHFA used in evaluating
measures.
The remaining two ‘‘supportive’’
submissions—one from a trade
association and one from a private
company—provided supplementary
recommendations. The submissions
addressed the following issues.
a. Data Inputs
Submissions urged FHFA to
incorporate as much transaction data as
possible in the formation of the
expanded-data index.
b. Distressed Sales and Gaps between
House Price Indexes
Submissions asked that FHFA track
the impact of distressed sales 3 on index
estimates over time, while also
monitoring divergences between the
FHFA index and other home price
measures.
c. Transparency and Data Releases
The submitter recommendation was
that FHFA publish additional details
about the underlying data used for
index construction.
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d. Constraints on Historical Index
Values
One submission asked FHFA to
consider constraining the historical
index series. That is—the request was
that FHFA consider not permitting
revisions in prior index estimates. Like
all of FHFA indexes, the expanded-data
HPI has historical values that are
regularly updated to account for new
data.
e. Geometric vs. Arithmetic Index
Without veering from its support of
the expanded-data index, one
submission also noted a theoretical bias
in the expanded-data index’s
measurement of trends in average home
prices. In particular, the submitter
stated that the underlying methodology
3 ‘‘Distressed sales’’ include short sales and sales
of properties that have gone through foreclosure.
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used in forming the expanded-data
index will create indexes that track the
geometric average home price as
opposed to the arithmetic average home
price.4 In doing so, as a theoretical
matter, the index reportedly would grow
somewhat more slowly over time than
would an arithmetic index. The letter
conceded that the differences will be
small over the short term (e.g., on an
annual bias), but worried about longterm compounding effects. The letter
noted that the CoreLogic-produced
indexes track arithmetic average home
prices and thus are not susceptible to
this bias.
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free’’ house price indexes for twelve
large cities so that it and the general
public can review the localized impact
of distressed sales on price
measurement. FHFA plans to continue
such releases and, more generally, will
continue evaluating price movements
across multiple measurements.
b. Distressed Sales and Gaps between
House Price Indexes
With respect to monitoring of
distressed sales and divergences
between the FHFA index and other
metrics: FHFA concurs that these are
reasonable activities. FHFA, in fact, has
been doing this type of monitoring for
many years and has published a number
of papers showing the results of its
work.6 Also, FHFA publishes ‘‘distress-
c. Transparency and Data Releases
A longstanding tradition in HPI
production has been to communicate
relevant summary data about the data
sample to the public. Accordingly,
FHFA appreciates the submitter interest
in maximizing the transparency of the
data used in index calibration. FHFA
regularly publishes information about
the share of the overall data sample
comprising refinance loans and, for the
expanded-data index, identifies index
estimates that have been calibrated with
limited county recorder data.7 For the
purchase-only indexes, flags identify
states having small sample sizes.
Highlights articles and Technical Notes
in the past have provided information
about the data samples as well. Aside
from the FHFA-provided data, relevant
information is also available from the
Enterprises. Because few data filters are
applied to the data sample before the
indexes are estimated, index users
seeking information about the
Enterprise portion of the expanded-data
transactions can benefit from reviewing
loan-level summary statistics regularly
published by the Enterprises.8
Although a great deal of information
is already available, FHFA will continue
evaluating opportunities for enhancing
its release of summary data. In
reviewing those opportunities, FHFA
will weigh the likely value of the
additional detail against the required
resource demands. It must also consider
whether the release of more data would
violate the terms of any applicable data
4 The geometric average of a set of numbers is
computed by multiplying the numbers together and
then raising the product to the power of one
divided by the number of observations. Although
not necessarily the case, the geometric average can
be close to the median value. The arithmetic
average is formed by adding numbers together and
dividing by the number of observations.
Although the ‘‘arithmetic’’ average is probably the
most common interpretation of the term ‘‘average,’’
it is not the only recognized meaning of the term,
and the statutory text does not make explicit which
type of ‘‘average’’ the index is supposed to track.
Which type of average to use is thus left to the
judgment of FHFA, as the agency charged with
administering and interpreting the statute.
5 For instance, opportunities may exist for
supplementing the existing data sample with sales
data from Multiple Listing Services and electronic
appraisal data.
6 See, for instance, Andrew Leventis, ‘‘Revisiting
the Differences between the OFHEO and S&P/CaseShiller Housing Price Indexes: New Explanations’’
OFHEO Research Paper, January 2008, available at
https://www.fhfa.gov/PolicyProgramsResearch/
Research/PaperDocuments/20080115_RP_
RevisitingDifferencesOFHEOSPCaseShillerHPI_
N508.pdf; Andrew Leventis, ‘‘The Impact of
Distressed Sales on Repeat-Transactions House
Price Indexes,’’ FHFA Research Paper, May 27,
2009, available at https://www.fhfa.gov/
PolicyProgramsResearch/Research/
PaperDocuments/20090527_RP_
ImpactDistressedSalesHPI_RP_508.pdf; and Will
Doerner and Andrew Leventis, ‘‘Working Paper 13–
1: Distressed Sales and the FHFA House Price
Index,’’ FHFA Working Paper, August 2013,
available at https://www.fhfa.gov/
PolicyProgramsResearch/Research/
PaperDocuments/2013-08_WorkingPaper_13-1_
508.pdf.
7 See the downloadable expanded-data HPI
estimates and the ‘‘loan type’’ table at https://
www.fhfa.gov/DataTools/Downloads/Pages/HousePrice-Index-Datasets.aspx.
8 See, for instance, Fannie Mae’s quarterly ‘‘Credit
Supplement’’ and Freddie Mac’s quarterly
‘‘Financial Results Supplement.’’
2. FHFA Response
a. Data Inputs
With respect to the submitter interest
in having FHFA increase the amount of
data used in calibrating the expandeddata index: FHFA agrees that this is a
desirable goal. In the context of tracking
overall home values across the country,
more data will tend to provide more
precise estimates of price changes.
While the database currently used is
extensive and incorporates a wide array
of transaction data, FHFA will continue
exploring opportunities for increasing
the sample size.5 As stated in the
Notice, to the extent that new data
become available and are incorporated,
FHFA will communicate the effects of
those changes to the public.
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licenses or would inappropriately
release confidential data.
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d. Constraints on Historical Index
Values
The suggestion that FHFA should
contemplate constraining historical
values of the expanded-data HPI is
motivated by a concern that historical
index revisions might cause confusion
among some index users. The submitter
recognizes that the entire historical
index series is revised with each new
index release, but it expresses concern
that such revisions will make it difficult
for the public to evaluate price changes.
Although FHFA understands the
argument, it does not believe that
artificial constraints on historical values
are warranted. The suggestion, which
was not a matter of particular stress in
the submitter’s letter, would entail a
significant departure from the basic
repeat-transactions indexing model and
would require a significant re-tooling of
the programming code. Furthermore,
historical index revisions tend to be
relatively small, particularly over short
periods of time. The index constraints
would also necessarily reduce the
accuracy of the index estimates. Finally,
many—if not most—users of FHFA’s
suite of public indexes are already
accustomed to the fact that historical
index values are always subject to
revision.
e. Geometric vs. Arithmetic Index
Regarding the theoretical biases
associated with FHFA’s use of an index
that tracks the geometric average home
value: FHFA appreciates the feedback
and understands the issue. As a
geometric index, FHFA’s expanded-data
measure will tend to correlate somewhat
more closely with changes in median
home values as opposed to arithmeticaverage home values and, in theory, will
grow slightly more slowly than an
arithmetic-based price index would.
Recognizing the theoretical issue, FHFA
notes that growth rate differences will
likely be small and increases in a
geometric index in practice can actually
exceed increases for an arithmetic
measure.9 A conversion to an
arithmetic-average index would also
inconvenience those index users who
find the existing FHFA methodology
superior for their applications. Coupled
with the fact that a conversion to an
arithmetic-average index would require
a significant expenditure of internal
resources (to change programming code
and perform model validation), these
9 See page 118 of Robert Shiller, ‘‘Arithmetic
Repeat Sales Price Estimators’’ Journal of Housing
Economics 1, 1991, pages 110–126.
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considerations lead FHFA to believe
that continuing with the existing
methodology is appropriate.
D. Discussion of the Three Responsive
‘‘Other’’ Submissions
1. Summary
As mentioned above, the three
‘‘other’’ responsive submissions
suggested various modifications to the
proposal described in the initial Notice.
None of them expressed outright
disapproval of the use of the expandeddata HPI and, indeed, incorporated it
into their proposals. Submitters felt that
adjustments were necessary to address
perceived shortfalls, however.
The first of the ‘‘other’’ submissions
expressed support for the use of the
expanded-data index, but worried that
the index does not adequately reflect
price trends for new homes. It noted
that the underlying repeat-transactions
approach used in forming the index is
calibrated using homes that have had
two or more historical sales. The upshot
of reliance on homes with multiple
transactions is that price trends for
brand new homes will not be
incorporated into the index.
To mitigate the perceived problem,
the submitter suggested that FHFA form
a weighted index that incorporates the
expanded-data measure as well as the
price index for new homes published by
the Census Bureau—the Constant
Quality House Price Index (CQHPI). The
change in the new combined index
would be calculated as the weighted
average of the changes in the FHFA
expanded-data HPI and the change in
the CQHPI, where the weights would be
the relative shares of existing-vs-new
home sales. So, for instance, if 15
percent of all property sales in a year
were sales of new homes, then the
growth in the combined index would be
85 percent times the change in the
expanded-data index plus 15 percent
times the change in the CQHPI.
The second of the ‘‘other’’
submissions expressed no concerns
about the absence of new homes in the
data sample, but rather was troubled by
the potential effects of distressed sales
on index estimates. The submitter was
concerned that variations in the
volumes of distressed sales across
geographic areas could inappropriately
bias index estimates. To mitigate this
problem, the letter recommended that
FHFA use both the expanded-data index
and its traditional ‘‘purchase-only’’
index, which is calibrated using only
Enterprise data. Specifically, it suggests
that FHFA use the higher of the two
appreciation rates—the rates reflected in
expanded-data and purchase-only
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indexes—when adjusting the
conforming loan limit. No indication is
provided as to why a ‘‘higher-of’’ rule is
better than some other type of rule (e.g.,
a simple averaging of the two numbers).
The same submitter asked that FHFA
‘‘explain and justify’’ its use of indexes
that reflect changes in the geometric
average home price. While endorsing
the use of the expanded-data and
purchase-only indexes, both of which
rely on the geometric approach, the
letter broadly worries about the same
bias as was addressed earlier.
The third of the ‘‘other’’ submissions
did not address the issue of the
geometric index bias, but was otherwise
similar in that it suggested the same
‘‘higher-of’’ rule for estimating price
changes. It contends that a ‘‘superior
alternative’’ to the use of the expandeddata index would be for FHFA to adjust
the loan limits by the higher of the
annual appreciation rates observed in
the expanded-data and purchase-only
index. FHFA has had difficulty
following the justification set forth in
the letter, but the rationale appears to
rest on the assumption that, because of
tightened credit availability, homes
outside of the conforming market (e.g.,
expensive homes) will evidence
relatively anemic price growth in the
early stages of economic recoveries. By
including homes financed with nonEnterprise loans, the expanded-data HPI
reportedly will tend to exhibit lackluster
price growth during recoveries.10 The
‘‘higher-of’’ rule would ensure that the
conforming loan limit grows by a
reasonable rate during recoveries.
The same submitter presented the
idea that a ‘‘more sophisticated’’
approach to loan limit adjustment might
be taken. The alternative approach
would take into account market factors
beyond home prices when adjusting
loan limits. Measures of loan ‘‘access,’’
for instance, might be incorporated. The
letter also suggests that in lieu of this
‘‘more sophisticated’’ measure, FHFA
might simply use its purchase-only
index—either in its existing form or in
a value-weighted form.11 As
justification for the use of the purchaseonly index, the letter simply indicates
that ‘‘it grows faster during market’s
expansion through the housing cycle.’’
2. FHFA Response
None of the three ‘‘other’’ submissions
expressed particularly strong sentiment
against the use expanded-data HPI and,
in evaluating the rationale for the
10 The submitter showed that the expanded-data
HPI grew more slowly than the purchase-only series
in the latest recovery.
11 The value-weighted index would track the
arithmetic average home price.
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proposed modifications, FHFA does not
find the arguments to be particularly
persuasive. In general, the suggested
adjustments have limited support from
both a statutory and statistical
perspective.
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a. Price Trends for New Homes
In assessing the criticism that FHFA’s
index—like other repeat-transactions
indexes—does not specifically
incorporate information about price
trends for brand new homes, FHFA
agrees that this may be a theoretical
shortfall. However, FHFA does not
believe that this will be a particularly
significant problem in practice. First,
while not capturing price trends for
brand new home sales, the repeattransaction model will reflect price
changes for relatively new homes. This
is because the underlying calibration
dataset includes cases in which new
homes were sold and then sold again
within a relatively short period of time.
The price change for these ‘‘young’’
homes will presumably be quite similar
to price trends for brand new homes.
In weighting by the share of sales for
new homes, the submitter’s proposal
assumes that the index of interest
should reflect price trends for homes
that have recently sold. FHFA does not
agree that this is appropriate in this
context. FHFA’s expanded-data index,
like its other indexes, aims to track
average home prices for all U.S.
properties—the overall housing stock—
and not just values for homes that were
sold. To implement the right weighting,
FHFA forms the national index by
taking a housing-stock-weighted average
of outcomes in the respective states.
To be sure, price changes in the
individual states necessarily must be
calculated using recent transaction
prices. However, as evidenced by the
fact that FHFA uses housing stock
estimates when forming the national
index, FHFA’s goal is to reflect price
trends for the overall housing stock.
Given this goal, the relevant statistic
for evaluating the importance of new
homes is the share of the housing stock
that such homes comprise. New homes
represent a very small proportion of the
overall housing stock and thus the
submitter’s concern about the exclusion
of new homes is not particularly
problematic. Although new home sales
constitute a reasonable share of
transactions in a given year (according
to the submitted letter, they have
averaged about 17 percent of sales over
the past 15 years), new homes are a very
small proportion of the housing stock.
In 2014, for instance, about 620,000 one-
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unit new homes were built.12 For
comparison purposes, estimates from
the Census Bureau indicate that there
were more than 89 million one-unit
properties in the country in the
preceding year.13 New homes thus were
substantially less than one percent of
the housing stock in 2014. A stockweighted combined index thus would
place more than 99 percent of its weight
on the price change reported by the
expanded-data index.
b. Distressed Sales and Housing Cycles
With respect to the argument that
distressed sales can distort home price
measurements: As detailed in the Notice
and noted by another submitter, there
are advantages and disadvantages
associated with the inclusion of such
sales in the data sample. Such
transactions can provide valuable
information about price trends in cases
where non-distressed sales volumes are
modest, for instance. Also, even if
removing distressed sales was deemed
to be desirable after balancing the
various considerations, given current
available data sources, it is difficult to
clearly identify such sales and remove
them from the data sample.14
The submission that raises concerns
about the expanded-data index showing
relatively limited price growth during
market recoveries provides no evidence
that the (anticipated) slow growth
would misrepresent actual appreciation
in the market. Tracking of home prices
is the key statutory requirement and,
accordingly, the relevant issue for FHFA
is not whether certain market factors
may influence lending and home prices
during market cycles; rather, the key
issue for FHFA is the reliability and
accuracy of price measurement. The
plain language of the statute does not
ask FHFA to evaluate market conditions
(as the submitter would have done using
a ‘‘more sophisticated measure’’) or to
somehow account for likely market
factors when selecting the appropriate
index. It also does not ask FHFA to
select an index that maximizes
measured price appreciation during
certain parts of the housing cycle.
Given the basic goal of tracking the
average home value over time, the
‘‘higher-of ’’ rule suggested by
12 See new private new home ‘‘completions’’ in
Table 5 of the New Residential Construction report
(available at https://www.census.gov/construction/
nrc/pdf/newresconst.pdf).
13 See https://factfinder.census.gov/faces/
tableservices/jsf/pages/
productview.xhtml?pid=ACS_13_1YR_
B25024&prodType=table.
14 FHFA currently publishes distress-free
measures for 12 metropolitan areas, but such
measures make use of a special, third-party-sourced
dataset to identify distressed transactions.
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63999
submitters is not well aligned with the
statutory language. By construction, the
higher-of rule will clearly inflate
estimates of home price appreciation
(and minimize measured price declines)
and thus would tend to lead to artificial
growth in conforming loan limits.
One of the two submitters that
advances the ‘‘higher-of ’’ rule does so to
mitigate the effect of distressed sales on
index estimates. Even assuming that the
inclusion of distressed sales is
problematic—an issue addressed
above—it is not clear why the maximum
of the two price change estimates would
be superior over the long term to use of
the midpoint (or some other function of
the two). Also, although there may be
some differences, the two indexes
generally will be affected similarly by
changes in the volumes of distressed
sales.
E. Conclusion
While not unanimous, the
submissions received in response to the
Notice were, on balance, quite positive.
All submitters seemed to agree that an
FHFA-produced measure was
appropriate. The only matter of some
(limited) debate seemed to be whether
small adjustments were necessary. In
some cases, the contemplated
adjustments would have a limited
influence on index estimates. In other
cases, FHFA believes that the
adjustments are not supported by the
statutory language.
FHFA will begin using the seasonally
adjusted, expanded-data HPI for the
U.S. for the purpose of adjusting the
baseline conforming loan limit.15
Consistent with the usual timing of
loan-limit releases, the first use of the
index will be in late November of this
year when FHFA announces the 2016
Enterprise loan limits. As in prior years,
FHFA will publish actual loan limits as
well as detailed information about the
relevant calculations. Given that the
expanded-data index is now the
reference index, the relevant discussion
will include an evaluation of changes in
the expanded-data index.
As detailed at length in the Notice,
certain loan-limit provisions in the
Enterprise Charters require that, after a
period of home price declines, the
baseline loan limit cannot rise again
until home prices exceed their predecline levels.16 In accordance with this
15 As discussed in the prior Notice, because index
values will be compared for the same quarter over
time, only the most trivial difference will exist
between the selected seasonally adjusted index and
an unadjusted index.
16 See Section 302(b)(2) (12 U.S.C. 17179b)(2)) of
the Fannie Mae Charter and Section 305(a)(2) (12
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22OCN1
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Federal Register / Vol. 80, No. 204 / Thursday, October 22, 2015 / Notices
requirement and as discussed in the
prior Notice, when determining the
2016 baseline conforming loan limit this
November, the third quarter 2015 price
level will be compared to the price level
in the third-quarter of 2007—the base
period for the recent price decline. As
the expanded-data HPI has now been
selected as the reference index, market
participants can expect that the net
price change (positive or negative) will
be computed over that interval using the
expanded-data HPI.
Dated: October 15, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015–26778 Filed 10–21–15; 8:45 am]
BILLING CODE 8070–01–P
Board of Governors of the Federal Reserve
System, October 19, 2015.
Michael J. Lewandowski,
Associate Secretary of the Board.
FEDERAL RESERVE SYSTEM
tkelley on DSK3SPTVN1PROD with NOTICES
Formations of, Acquisitions by, and
Mergers of Bank Holding Companies
The companies listed in this notice
have applied to the Board for approval,
pursuant to the Bank Holding Company
Act of 1956 (12 U.S.C. 1841 et seq.)
(BHC Act), Regulation Y (12 CFR part
225), and all other applicable statutes
and regulations to become a bank
holding company and/or to acquire the
assets or the ownership of, control of, or
the power to vote shares of a bank or
bank holding company and all of the
banks and nonbanking companies
owned by the bank holding company,
including the companies listed below.
The applications listed below, as well
as other related filings required by the
Board, are available for immediate
inspection at the Federal Reserve Bank
indicated. The applications will also be
available for inspection at the offices of
the Board of Governors. Interested
persons may express their views in
writing on the standards enumerated in
the BHC Act (12 U.S.C. 1842(c)). If the
proposal also involves the acquisition of
a nonbanking company, the review also
includes whether the acquisition of the
nonbanking company complies with the
standards in section 4 of the BHC Act
(12 U.S.C. 1843). Unless otherwise
noted, nonbanking activities will be
conducted throughout the United States.
Unless otherwise noted, comments
regarding each of these applications
must be received at the Reserve Bank
indicated or the offices of the Board of
Governors not later than November 16,
2015.
A. Federal Reserve Bank of Richmond
(Adam M. Drimer, Assistant Vice
U.S.C. 1454(a)(2)) of the Freddie Charter. These
sections were amended by HERA sections 1124(a)
and (b), 122 Stat. 2691–2692.
VerDate Sep<11>2014
18:05 Oct 21, 2015
Jkt 238001
President) 701 East Byrd Street,
Richmond, Virginia 23261–4528:
1. Premier Financial Bancorp, Inc.,
Huntington, West Virginia; to merge
with First National Bankshares
Corporation, and thereby indirectly
acquire First National Bank, both in
Ronceverte, West Virginia.
B. Federal Reserve Bank of Dallas
(Robert L. Triplett III, Senior Vice
President) 2200 North Pearl Street,
Dallas, Texas 75201–2272:
1. WSB Bancshares, Inc., Wellington,
Texas; to acquire 100 percent of the
voting share of XIT Bancshares, Inc.,
and thereby indirectly acquire voting
shares of Security State Bank, both in
Littlefield, Texas.
[FR Doc. 2015–26847 Filed 10–21–15; 8:45 am]
BILLING CODE 6210–01–P
President) 1000 Peachtree Street NE.,
Atlanta, Georgia 30309:
1. Michael William Mathis of Rome,
Georgia; to acquire voting shares of RCB
Financial Corporation, and thereby
indirectly acquire voting shares of River
City Bank, both of Rome, Georgia.
C. Federal Reserve Bank of Dallas
(Robert L. Triplett III, Senior Vice
President) 2200 North Pearl Street,
Dallas, Texas 75201–2272:
1. Mary Ann Blaylock, Midland,
Texas, individually and Martha Sue
Oliver, San Angelo, Texas, individually
and as trustee of the Maxine Page 2015
Bank Stock Trust and the James Page
Trust; to acquire voting shares of First
Eldorado Bancshares, Inc., Eldorado,
Texas, and thereby indirectly acquire
The First National Bank of Eldorado,
Eldorado, Texas.
Board of Governors of the Federal Reserve
System, October 16, 2015.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2015–26792 Filed 10–21–15; 8:45 am]
FEDERAL RESERVE SYSTEM
BILLING CODE 6210–01–P
Change in Bank Control Notices;
Acquisitions of Shares of a Bank or
Bank Holding Company
FEDERAL RESERVE SYSTEM
The notificants listed below have
applied under the Change in Bank
Control Act (12 U.S.C. 1817(j)) and
§ 225.41 of the Board’s Regulation Y (12
CFR 225.41) to acquire shares of a bank
or bank holding company. The factors
that are considered in acting on the
notices are set forth in paragraph 7 of
the Act (12 U.S.C. 1817(j)(7)).
The notices are available for
immediate inspection at the Federal
Reserve Bank indicated. The notices
also will be available for inspection at
the offices of the Board of Governors.
Interested persons may express their
views in writing to the Reserve Bank
indicated for that notice or to the offices
of the Board of Governors. Comments
must be received not later than
November 5, 2015.
A. Federal Reserve Bank of
Philadelphia (William Lang, Senior Vice
President) 100 North 6th Street,
Philadelphia, Pennsylvania 19105–
1521:
1. George K. Miller, Ft. Lauderdale,
Florida, individually and as part as a
group acting in concert with OceanFirst
Bank as the voting trustee of the George
K. Miller Voting Trust, Toms River, New
Jersey; to acquire voting shares of
Cornerstone Financial Corporation, and
thereby indirectly acquire voting shares
of Cornerstone Bank, both in Mt. Laurel,
New Jersey.
B. Federal Reserve Bank of Atlanta
(Chapelle Davis, Assistant Vice
PO 00000
Frm 00044
Fmt 4703
Sfmt 4703
Proposed Agency Information
Collection Activities; Comment
Request
Board of Governors of the
Federal Reserve System.
SUMMARY: On June 15, 1984, the Office
of Management and Budget (OMB)
delegated to the Board of Governors of
the Federal Reserve System (Board) its
approval authority under the Paperwork
Reduction Act (PRA), to approve of and
assign OMB numbers to collection of
information requests and requirements
conducted or sponsored by the Board.
Board-approved collections of
information are incorporated into the
official OMB inventory of currently
approved collections of information.
Copies of the PRA Submission,
supporting statements and approved
collection of information instruments
are placed into OMB’s public docket
files. The Federal Reserve may not
conduct or sponsor, and the respondent
is not required to respond to, an
information collection that has been
extended, revised, or implemented on or
after October 1, 1995, unless it displays
a currently valid OMB number.
DATES: Comments must be submitted on
or before December 21, 2015.
ADDRESSES: You may submit comments,
identified by FR Y–12/12A, FR 2230, FR
4001, or Reg H–7 by any of the following
methods:
• Agency Web site: https://
www.federalreserve.gov. Follow the
AGENCY:
E:\FR\FM\22OCN1.SGM
22OCN1
Agencies
[Federal Register Volume 80, Number 204 (Thursday, October 22, 2015)]
[Notices]
[Pages 63996-64000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26778]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
[No. 2015-N-10]
Notice of Establishment of Housing Price Index
AGENCY: Federal Housing Finance Agency.
ACTION: Final notice.
-----------------------------------------------------------------------
SUMMARY: On May 27, 2015, the Federal Housing Finance Agency (FHFA)
published a Notice and Request for Input (Notice) describing a method
for assessing the national average single-family house price for use in
adjusting the maximum conforming loan limits of Fannie Mae and Freddie
Mac (the ``Enterprises''). The Notice responded to section 1322 of the
Federal Housing Enterprises Financial Safety and Soundness Act of 1992
(12 U.S.C. 4501 et seq.) (``Safety and Soundness Act'') which required
FHFA to ``establish and maintain a method of assessing the national
average 1-family house price for use in adjusting the conforming loan
limitations.'' The Notice indicated that FHFA intends to use its
existing ``expanded-data'' house price index (HPI) for such purpose and
invited public feedback.
In line with the proposal in the original Notice, after reviewing
the public feedback, FHFA has decided to use the expanded-data HPI for
annual loan-limit adjustment. Specifically, FHFA will use the
seasonally adjusted, expanded-data HPI for the United States.
DATES: Effective Date: October 22, 2015.
FOR FURTHER INFORMATION CONTACT: Questions about the expanded-data HPI
and the implementation of the conforming loan limit rules can be
addressed to Andrew Leventis, Principal Economist, 202-649-3199,
Andrew.Leventis@fhfa.gov, or Jamie Schwing, Associate General Counsel,
202-649-3085, Jamie.Schwing@fhfa.gov, (not toll-free numbers), Federal
Housing Finance Agency, 400 Seventh Street SW., Washington, DC 20024.
SUPPLEMENTARY INFORMATION:
A. Background
The ``Notice of the Establishment of Housing Price Index'' that
FHFA issued in May \1\ announced that the agency intended to use its
expanded-data HPI for the purpose of satisfying section 1322 (12 U.S.C.
4542) of the Safety and Soundness Act.\2\ Section 1322 requires FHFA to
``establish and maintain'' a house price index that tracks the average
U.S. home price. May's Notice detailed FHFA's rationale for the choice
of the expanded-data index over other measures. The Notice discussed
the advantages and disadvantages of several metrics and outlined the
various considerations FHFA found most compelling in choosing the
index. Identifying the seasonally adjusted, expanded-data HPI for the
U.S. as the selected index, the Notice invited public input and
provided for an input period that extended through July 27, 2015. This
Final Notice summarizes the input submissions received and responds to
questions and concerns that were raised in the submissions.
---------------------------------------------------------------------------
\1\ See 80 FR 30237 (May 27, 2015).
\2\ Section 1124(d) of the Housing and Economic Recovery Act of
2008 (HERA), 122 Stat. 2693, amended the Safety and Soundness Act to
include this section.
---------------------------------------------------------------------------
B. Overview of Input Submissions Received
FHFA received a total of 20 submissions in response to the Notice.
Submissions were received from private citizens, trade associations, a
think tank, and one private company. Twelve of the submissions did not
address the issue on which input had been requested: the
appropriateness of the chosen home price measure. In most cases, these
submissions opined on the desirability of having higher conforming loan
limits, rather than FHFA's choice of index.
In general, the eight responsive submissions were favorable to
FHFA's proposed use of its expanded-data index for loan limit
adjustment. Most submissions supported the basic underlying methodology
used in the index construction and appreciated the breadth of the data
sample used in forming the index. More generally, submitters agreed
that reliance on an agency-produced measure (as opposed to a privately
produced index) would be beneficial in that it would ensure continued
publication of the reference index. They also concurred with FHFA's
belief that its control over the reference index would ensure that
undesirable modifications to methodology would not be made (as might
happen if the agency relied on an external measure of home prices).
Five of the eight responsive submissions were generally supportive
of the use of the expanded-data index as-is. The remaining three did
not object to the use of the expanded-data index, but suggested
modifications to the process or augmentations. In particular, the
proposed adjustments recommended the use of multiple price indexes and,
in one case, the consideration of other mortgage market factors.
For the purpose of summarizing and addressing the responsive
submissions received, this Final Notice divides them into two groups:
``Supportive'' and ``Other.'' This classification is for convenience;
as will be clear in the discussion, responses in both categories were
not uniform. For instance, in some cases, the ``Supportive''
submissions included questions or expressed modest concerns. Meanwhile,
the ``Other''
[[Page 63997]]
submissions often included strong praise for certain characteristics of
FHFA's proposal.
C. Discussion of the Five Responsive ``Supportive'' Submissions
1. Summary
Three of the five ``supportive'' submissions were wholly in
agreement with the proposed use of the expanded-data index for tracking
the average U.S. home price. None of the three, which were all
submitted by trade associations, provided any material criticism. They
expressed strong support for FHFA's choice and, to varying degrees, the
principles FHFA used in evaluating measures.
The remaining two ``supportive'' submissions--one from a trade
association and one from a private company--provided supplementary
recommendations. The submissions addressed the following issues.
a. Data Inputs
Submissions urged FHFA to incorporate as much transaction data as
possible in the formation of the expanded-data index.
b. Distressed Sales and Gaps between House Price Indexes
Submissions asked that FHFA track the impact of distressed sales
\3\ on index estimates over time, while also monitoring divergences
between the FHFA index and other home price measures.
---------------------------------------------------------------------------
\3\ ``Distressed sales'' include short sales and sales of
properties that have gone through foreclosure.
---------------------------------------------------------------------------
c. Transparency and Data Releases
The submitter recommendation was that FHFA publish additional
details about the underlying data used for index construction.
d. Constraints on Historical Index Values
One submission asked FHFA to consider constraining the historical
index series. That is--the request was that FHFA consider not
permitting revisions in prior index estimates. Like all of FHFA
indexes, the expanded-data HPI has historical values that are regularly
updated to account for new data.
e. Geometric vs. Arithmetic Index
Without veering from its support of the expanded-data index, one
submission also noted a theoretical bias in the expanded-data index's
measurement of trends in average home prices. In particular, the
submitter stated that the underlying methodology used in forming the
expanded-data index will create indexes that track the geometric
average home price as opposed to the arithmetic average home price.\4\
In doing so, as a theoretical matter, the index reportedly would grow
somewhat more slowly over time than would an arithmetic index. The
letter conceded that the differences will be small over the short term
(e.g., on an annual bias), but worried about long-term compounding
effects. The letter noted that the CoreLogic-produced indexes track
arithmetic average home prices and thus are not susceptible to this
bias.
---------------------------------------------------------------------------
\4\ The geometric average of a set of numbers is computed by
multiplying the numbers together and then raising the product to the
power of one divided by the number of observations. Although not
necessarily the case, the geometric average can be close to the
median value. The arithmetic average is formed by adding numbers
together and dividing by the number of observations.
Although the ``arithmetic'' average is probably the most common
interpretation of the term ``average,'' it is not the only
recognized meaning of the term, and the statutory text does not make
explicit which type of ``average'' the index is supposed to track.
Which type of average to use is thus left to the judgment of FHFA,
as the agency charged with administering and interpreting the
statute.
---------------------------------------------------------------------------
2. FHFA Response
a. Data Inputs
With respect to the submitter interest in having FHFA increase the
amount of data used in calibrating the expanded-data index: FHFA agrees
that this is a desirable goal. In the context of tracking overall home
values across the country, more data will tend to provide more precise
estimates of price changes. While the database currently used is
extensive and incorporates a wide array of transaction data, FHFA will
continue exploring opportunities for increasing the sample size.\5\ As
stated in the Notice, to the extent that new data become available and
are incorporated, FHFA will communicate the effects of those changes to
the public.
---------------------------------------------------------------------------
\5\ For instance, opportunities may exist for supplementing the
existing data sample with sales data from Multiple Listing Services
and electronic appraisal data.
---------------------------------------------------------------------------
b. Distressed Sales and Gaps between House Price Indexes
With respect to monitoring of distressed sales and divergences
between the FHFA index and other metrics: FHFA concurs that these are
reasonable activities. FHFA, in fact, has been doing this type of
monitoring for many years and has published a number of papers showing
the results of its work.\6\ Also, FHFA publishes ``distress-free''
house price indexes for twelve large cities so that it and the general
public can review the localized impact of distressed sales on price
measurement. FHFA plans to continue such releases and, more generally,
will continue evaluating price movements across multiple measurements.
---------------------------------------------------------------------------
\6\ See, for instance, Andrew Leventis, ``Revisiting the
Differences between the OFHEO and S&P/Case-Shiller Housing Price
Indexes: New Explanations'' OFHEO Research Paper, January 2008,
available at https://www.fhfa.gov/PolicyProgramsResearch/Research/PaperDocuments/20080115_RP_RevisitingDifferencesOFHEOSPCaseShillerHPI_N508.pdf;
Andrew Leventis, ``The Impact of Distressed Sales on Repeat-
Transactions House Price Indexes,'' FHFA Research Paper, May 27,
2009, available at https://www.fhfa.gov/PolicyProgramsResearch/Research/PaperDocuments/20090527_RP_ImpactDistressedSalesHPI_RP_508.pdf; and Will Doerner
and Andrew Leventis, ``Working Paper 13-1: Distressed Sales and the
FHFA House Price Index,'' FHFA Working Paper, August 2013, available
at https://www.fhfa.gov/PolicyProgramsResearch/Research/PaperDocuments/2013-08_WorkingPaper_13-1_508.pdf.
---------------------------------------------------------------------------
c. Transparency and Data Releases
A longstanding tradition in HPI production has been to communicate
relevant summary data about the data sample to the public. Accordingly,
FHFA appreciates the submitter interest in maximizing the transparency
of the data used in index calibration. FHFA regularly publishes
information about the share of the overall data sample comprising
refinance loans and, for the expanded-data index, identifies index
estimates that have been calibrated with limited county recorder
data.\7\ For the purchase-only indexes, flags identify states having
small sample sizes. Highlights articles and Technical Notes in the past
have provided information about the data samples as well. Aside from
the FHFA-provided data, relevant information is also available from the
Enterprises. Because few data filters are applied to the data sample
before the indexes are estimated, index users seeking information about
the Enterprise portion of the expanded-data transactions can benefit
from reviewing loan-level summary statistics regularly published by the
Enterprises.\8\
---------------------------------------------------------------------------
\7\ See the downloadable expanded-data HPI estimates and the
``loan type'' table at https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index-Datasets.aspx.
\8\ See, for instance, Fannie Mae's quarterly ``Credit
Supplement'' and Freddie Mac's quarterly ``Financial Results
Supplement.''
---------------------------------------------------------------------------
Although a great deal of information is already available, FHFA
will continue evaluating opportunities for enhancing its release of
summary data. In reviewing those opportunities, FHFA will weigh the
likely value of the additional detail against the required resource
demands. It must also consider whether the release of more data would
violate the terms of any applicable data
[[Page 63998]]
licenses or would inappropriately release confidential data.
d. Constraints on Historical Index Values
The suggestion that FHFA should contemplate constraining historical
values of the expanded-data HPI is motivated by a concern that
historical index revisions might cause confusion among some index
users. The submitter recognizes that the entire historical index series
is revised with each new index release, but it expresses concern that
such revisions will make it difficult for the public to evaluate price
changes.
Although FHFA understands the argument, it does not believe that
artificial constraints on historical values are warranted. The
suggestion, which was not a matter of particular stress in the
submitter's letter, would entail a significant departure from the basic
repeat-transactions indexing model and would require a significant re-
tooling of the programming code. Furthermore, historical index
revisions tend to be relatively small, particularly over short periods
of time. The index constraints would also necessarily reduce the
accuracy of the index estimates. Finally, many--if not most--users of
FHFA's suite of public indexes are already accustomed to the fact that
historical index values are always subject to revision.
e. Geometric vs. Arithmetic Index
Regarding the theoretical biases associated with FHFA's use of an
index that tracks the geometric average home value: FHFA appreciates
the feedback and understands the issue. As a geometric index, FHFA's
expanded-data measure will tend to correlate somewhat more closely with
changes in median home values as opposed to arithmetic-average home
values and, in theory, will grow slightly more slowly than an
arithmetic-based price index would. Recognizing the theoretical issue,
FHFA notes that growth rate differences will likely be small and
increases in a geometric index in practice can actually exceed
increases for an arithmetic measure.\9\ A conversion to an arithmetic-
average index would also inconvenience those index users who find the
existing FHFA methodology superior for their applications. Coupled with
the fact that a conversion to an arithmetic-average index would require
a significant expenditure of internal resources (to change programming
code and perform model validation), these considerations lead FHFA to
believe that continuing with the existing methodology is appropriate.
---------------------------------------------------------------------------
\9\ See page 118 of Robert Shiller, ``Arithmetic Repeat Sales
Price Estimators'' Journal of Housing Economics 1, 1991, pages 110-
126.
---------------------------------------------------------------------------
D. Discussion of the Three Responsive ``Other'' Submissions
1. Summary
As mentioned above, the three ``other'' responsive submissions
suggested various modifications to the proposal described in the
initial Notice. None of them expressed outright disapproval of the use
of the expanded-data HPI and, indeed, incorporated it into their
proposals. Submitters felt that adjustments were necessary to address
perceived shortfalls, however.
The first of the ``other'' submissions expressed support for the
use of the expanded-data index, but worried that the index does not
adequately reflect price trends for new homes. It noted that the
underlying repeat-transactions approach used in forming the index is
calibrated using homes that have had two or more historical sales. The
upshot of reliance on homes with multiple transactions is that price
trends for brand new homes will not be incorporated into the index.
To mitigate the perceived problem, the submitter suggested that
FHFA form a weighted index that incorporates the expanded-data measure
as well as the price index for new homes published by the Census
Bureau--the Constant Quality House Price Index (CQHPI). The change in
the new combined index would be calculated as the weighted average of
the changes in the FHFA expanded-data HPI and the change in the CQHPI,
where the weights would be the relative shares of existing-vs-new home
sales. So, for instance, if 15 percent of all property sales in a year
were sales of new homes, then the growth in the combined index would be
85 percent times the change in the expanded-data index plus 15 percent
times the change in the CQHPI.
The second of the ``other'' submissions expressed no concerns about
the absence of new homes in the data sample, but rather was troubled by
the potential effects of distressed sales on index estimates. The
submitter was concerned that variations in the volumes of distressed
sales across geographic areas could inappropriately bias index
estimates. To mitigate this problem, the letter recommended that FHFA
use both the expanded-data index and its traditional ``purchase-only''
index, which is calibrated using only Enterprise data. Specifically, it
suggests that FHFA use the higher of the two appreciation rates--the
rates reflected in expanded-data and purchase-only indexes--when
adjusting the conforming loan limit. No indication is provided as to
why a ``higher-of'' rule is better than some other type of rule (e.g.,
a simple averaging of the two numbers).
The same submitter asked that FHFA ``explain and justify'' its use
of indexes that reflect changes in the geometric average home price.
While endorsing the use of the expanded-data and purchase-only indexes,
both of which rely on the geometric approach, the letter broadly
worries about the same bias as was addressed earlier.
The third of the ``other'' submissions did not address the issue of
the geometric index bias, but was otherwise similar in that it
suggested the same ``higher-of'' rule for estimating price changes. It
contends that a ``superior alternative'' to the use of the expanded-
data index would be for FHFA to adjust the loan limits by the higher of
the annual appreciation rates observed in the expanded-data and
purchase-only index. FHFA has had difficulty following the
justification set forth in the letter, but the rationale appears to
rest on the assumption that, because of tightened credit availability,
homes outside of the conforming market (e.g., expensive homes) will
evidence relatively anemic price growth in the early stages of economic
recoveries. By including homes financed with non-Enterprise loans, the
expanded-data HPI reportedly will tend to exhibit lackluster price
growth during recoveries.\10\ The ``higher-of'' rule would ensure that
the conforming loan limit grows by a reasonable rate during recoveries.
---------------------------------------------------------------------------
\10\ The submitter showed that the expanded-data HPI grew more
slowly than the purchase-only series in the latest recovery.
---------------------------------------------------------------------------
The same submitter presented the idea that a ``more sophisticated''
approach to loan limit adjustment might be taken. The alternative
approach would take into account market factors beyond home prices when
adjusting loan limits. Measures of loan ``access,'' for instance, might
be incorporated. The letter also suggests that in lieu of this ``more
sophisticated'' measure, FHFA might simply use its purchase-only
index--either in its existing form or in a value-weighted form.\11\ As
justification for the use of the purchase-only index, the letter simply
indicates that ``it grows faster during market's expansion through the
housing cycle.''
---------------------------------------------------------------------------
\11\ The value-weighted index would track the arithmetic average
home price.
---------------------------------------------------------------------------
2. FHFA Response
None of the three ``other'' submissions expressed particularly
strong sentiment against the use expanded-data HPI and, in evaluating
the rationale for the
[[Page 63999]]
proposed modifications, FHFA does not find the arguments to be
particularly persuasive. In general, the suggested adjustments have
limited support from both a statutory and statistical perspective.
a. Price Trends for New Homes
In assessing the criticism that FHFA's index--like other repeat-
transactions indexes--does not specifically incorporate information
about price trends for brand new homes, FHFA agrees that this may be a
theoretical shortfall. However, FHFA does not believe that this will be
a particularly significant problem in practice. First, while not
capturing price trends for brand new home sales, the repeat-transaction
model will reflect price changes for relatively new homes. This is
because the underlying calibration dataset includes cases in which new
homes were sold and then sold again within a relatively short period of
time. The price change for these ``young'' homes will presumably be
quite similar to price trends for brand new homes.
In weighting by the share of sales for new homes, the submitter's
proposal assumes that the index of interest should reflect price trends
for homes that have recently sold. FHFA does not agree that this is
appropriate in this context. FHFA's expanded-data index, like its other
indexes, aims to track average home prices for all U.S. properties--the
overall housing stock--and not just values for homes that were sold. To
implement the right weighting, FHFA forms the national index by taking
a housing-stock-weighted average of outcomes in the respective states.
To be sure, price changes in the individual states necessarily must
be calculated using recent transaction prices. However, as evidenced by
the fact that FHFA uses housing stock estimates when forming the
national index, FHFA's goal is to reflect price trends for the overall
housing stock.
Given this goal, the relevant statistic for evaluating the
importance of new homes is the share of the housing stock that such
homes comprise. New homes represent a very small proportion of the
overall housing stock and thus the submitter's concern about the
exclusion of new homes is not particularly problematic. Although new
home sales constitute a reasonable share of transactions in a given
year (according to the submitted letter, they have averaged about 17
percent of sales over the past 15 years), new homes are a very small
proportion of the housing stock. In 2014, for instance, about 620,000
one-unit new homes were built.\12\ For comparison purposes, estimates
from the Census Bureau indicate that there were more than 89 million
one-unit properties in the country in the preceding year.\13\ New homes
thus were substantially less than one percent of the housing stock in
2014. A stock-weighted combined index thus would place more than 99
percent of its weight on the price change reported by the expanded-data
index.
---------------------------------------------------------------------------
\12\ See new private new home ``completions'' in Table 5 of the
New Residential Construction report (available at https://www.census.gov/construction/nrc/pdf/newresconst.pdf).
\13\ See https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_13_1YR_B25024&prodType=table.
---------------------------------------------------------------------------
b. Distressed Sales and Housing Cycles
With respect to the argument that distressed sales can distort home
price measurements: As detailed in the Notice and noted by another
submitter, there are advantages and disadvantages associated with the
inclusion of such sales in the data sample. Such transactions can
provide valuable information about price trends in cases where non-
distressed sales volumes are modest, for instance. Also, even if
removing distressed sales was deemed to be desirable after balancing
the various considerations, given current available data sources, it is
difficult to clearly identify such sales and remove them from the data
sample.\14\
---------------------------------------------------------------------------
\14\ FHFA currently publishes distress-free measures for 12
metropolitan areas, but such measures make use of a special, third-
party-sourced dataset to identify distressed transactions.
---------------------------------------------------------------------------
The submission that raises concerns about the expanded-data index
showing relatively limited price growth during market recoveries
provides no evidence that the (anticipated) slow growth would
misrepresent actual appreciation in the market. Tracking of home prices
is the key statutory requirement and, accordingly, the relevant issue
for FHFA is not whether certain market factors may influence lending
and home prices during market cycles; rather, the key issue for FHFA is
the reliability and accuracy of price measurement. The plain language
of the statute does not ask FHFA to evaluate market conditions (as the
submitter would have done using a ``more sophisticated measure'') or to
somehow account for likely market factors when selecting the
appropriate index. It also does not ask FHFA to select an index that
maximizes measured price appreciation during certain parts of the
housing cycle.
Given the basic goal of tracking the average home value over time,
the ``higher-of '' rule suggested by submitters is not well aligned
with the statutory language. By construction, the higher-of rule will
clearly inflate estimates of home price appreciation (and minimize
measured price declines) and thus would tend to lead to artificial
growth in conforming loan limits.
One of the two submitters that advances the ``higher-of '' rule
does so to mitigate the effect of distressed sales on index estimates.
Even assuming that the inclusion of distressed sales is problematic--an
issue addressed above--it is not clear why the maximum of the two price
change estimates would be superior over the long term to use of the
midpoint (or some other function of the two). Also, although there may
be some differences, the two indexes generally will be affected
similarly by changes in the volumes of distressed sales.
E. Conclusion
While not unanimous, the submissions received in response to the
Notice were, on balance, quite positive. All submitters seemed to agree
that an FHFA-produced measure was appropriate. The only matter of some
(limited) debate seemed to be whether small adjustments were necessary.
In some cases, the contemplated adjustments would have a limited
influence on index estimates. In other cases, FHFA believes that the
adjustments are not supported by the statutory language.
FHFA will begin using the seasonally adjusted, expanded-data HPI
for the U.S. for the purpose of adjusting the baseline conforming loan
limit.\15\ Consistent with the usual timing of loan-limit releases, the
first use of the index will be in late November of this year when FHFA
announces the 2016 Enterprise loan limits. As in prior years, FHFA will
publish actual loan limits as well as detailed information about the
relevant calculations. Given that the expanded-data index is now the
reference index, the relevant discussion will include an evaluation of
changes in the expanded-data index.
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\15\ As discussed in the prior Notice, because index values will
be compared for the same quarter over time, only the most trivial
difference will exist between the selected seasonally adjusted index
and an unadjusted index.
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As detailed at length in the Notice, certain loan-limit provisions
in the Enterprise Charters require that, after a period of home price
declines, the baseline loan limit cannot rise again until home prices
exceed their pre-decline levels.\16\ In accordance with this
[[Page 64000]]
requirement and as discussed in the prior Notice, when determining the
2016 baseline conforming loan limit this November, the third quarter
2015 price level will be compared to the price level in the third-
quarter of 2007--the base period for the recent price decline. As the
expanded-data HPI has now been selected as the reference index, market
participants can expect that the net price change (positive or
negative) will be computed over that interval using the expanded-data
HPI.
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\16\ See Section 302(b)(2) (12 U.S.C. 17179b)(2)) of the Fannie
Mae Charter and Section 305(a)(2) (12 U.S.C. 1454(a)(2)) of the
Freddie Charter. These sections were amended by HERA sections
1124(a) and (b), 122 Stat. 2691-2692.
Dated: October 15, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015-26778 Filed 10-21-15; 8:45 am]
BILLING CODE 8070-01-P