Fundamental Analysis For Novices – House Price Index
Welcome to the educational video for Fundamental Analysis For Novices. In this session, we will be looking at the House Price Index.
If you are not already doing so, we strongly recommend that you regularly check a reliable economic calendar each day to be forewarned about economic data releases from countries that might affect your open or planned trades.
Economic data releases impact the market in various degrees, and you should pay particular attention to the date of the event, the time, and most importantly, the likely impact it will have, which usually is in 3 degrees, low, medium, and high.
Most calendars will also provide you with the previous data release in each category, the consensus, or the expected data release as analysed by economists and analysts who have come to an average consensus value, and the actual figure which is updated with the data upon release.
Each country releases similar titled economic data into the market, mostly on an embargoed basis, in order not to give traders an advantage and to avoid market manipulation.
Today we are looking at House Price Index!
Here we can see there are two releases due for the 15th June 2020; one has been collated by Rightmove property website for the UK where the numbers are a sample only and are reflected of the period for May and are devised on a month by month basis and the second which is updated on year by year basis. and the other
The impact level for this type of indicator is typically low and does not usually cause market volatility.
So what is the House Price Index, and how do you trade it?
The house price index or HPI, as it is also known, measures the price change in the value of residential houses. The data is typically released into the market on a month-by-month basis or updated on an annual basis.
The data, in all cases, is calculated as a percentage figure from a specific start date. In most cases, the statistical method to calculate price swings is called a hedonic regression model.
In the UK, the HPI is released by the Office for National Statistics. In the United States, the HPI is published by The US Federal Housing Finance Agency, where it measures those family homes that have been sold or refinanced in 363 metropolises. Not to be confused with the FNC Residential price index as published by FNC Incorporated, which records value in non-distressed home sales and is widely used by the mortgage sector as a tool to gauge price movements.
The basic rule of thumb is that house prices that are falling in value are reflective of an economy that is struggling and whereby perhaps unemployment is high, wages are low, and the growth of an economy is slowing, stalled, or in recession. This would have a negative impact on the currency of a particular country. Therefore you might find the value of a local currency falling in value in terms of exchange
On the flip side, a higher than expected HPI number might be reflective of an improving economy, in which case it is better for the local currency, and you might find it increasing in value on exchange rates.
Always compare the actual HPI release number to the consensus value and the previous release and remember that markets do not like shocks. Deviations from the consensus and previous releases can cause market instability.