The Home Purchase Sentiment IndexTM

An Overview

September, 2015 

1. Introduction

Fannie Mae launched the National Housing Survey (NHS) in 2010 to generate new information 

about consumer attitudes, intentions, and financial conditions that pertain to housing and 

mortgage markets.1 The NHS is the only large, national, monthly survey of consumers focused 

primarily on housing. The responses of the nationally-representative sample of 1000 consumers 

each month to about 100 survey questions promptly provide information on a wide range of 

housing-related topics.

Timely detection of shifts in consumer outlooks is especially valuable for housing and mortgage 

markets, which are particularly oriented toward the future. Traditionally, economic data 

objectively and valuably measure what has happened in the past. Surveys, on the other hand, 

provide direct measures of consumers’ evaluations of recent, of ongoing, and even of expected 

future developments to inform discussions and forecasts of consumer spending, business 

investment, labor costs, inflation, bond yields, and monetary policy. Thus, survey data often can 

better and sooner signal how consumers evaluate and will then react to recent news, shifts in 

prevailing economic relationships, and changes in their expectations about the future.

We extensively analyzed the NHS to develop a single indicator that would effectively and 

efficiently distill its information about consumers’ home purchase sentiment: The Home 

Purchase Sentiment Index (HPSI). While similar in spirit to two venerable measures of general 

consumer sentiment, the University of Michigan Surveys of Consumers Index of Consumer 

Sentiment (ICS) and the Conference Board Consumer Confidence Index (CCI), the HPSI is 

specifically devoted to the housing market. Based on our analysis, we expect that the HPSI will 

reflect current and future housing market outcomes that are distinct from the indices of general 

consumer sentiment. Detailed analysis about the construction and performance of the HPSI can 

be found on the Fannie Mae website.2

The HPSI is constructed from consumers’ answers to the six NHS questions shown in Table 1. 

The six questions solicit consumers’ evaluations of housing market conditions and address topics 

that are related to their home purchase decisions. The questions ask consumers whether they 

1 More information on the National Housing SurveyTM methodology and questionnaire can be found at

http://www.fanniemae.com/portal/research-and-analysis/housing-survey.html 2 Detailed analysis about the construction and performance of the HPSI can be found in The Home-Purchase 

Sentiment Index: A New Housing Indicator and even more detail can be found in an approximately 100 page white 

paper Building a Home Purchase Sentiment Index. See

(http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/hpsi-whitepaper.pdf)

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think that it is a good or bad time to buy or to sell a house, what direction they expect home 

prices and mortgage interest rates to move, how concerned they are about losing their jobs, and 

whether their incomes are higher than they were a year earlier.

Table 1: The Six NHS Questions Used to Build the Home Purchase Sentiment Index

Survey

Question Question Posed to Consumers Time Period

Q12 In general, do you think this is a very good time to buy a house, a somewhat 

good time, a somewhat bad time, or a very bad time to buy a house? Now

Q13 In general, do you think this is a very good time to sell a house, a somewhat 

good time, a somewhat bad time, or a very bad time to sell a house? Now

Q15 During the next 12 months, do you think home prices in general will go up, go 

down, or stay the same as where they are now? Next 12 months

Q20B During the next 12 months, do you think home mortgage interest rates will go 

up, go down, or stay the same as where they are now? Next 12 months

Q112B

How concerned are you that you will lose your job in the next twelve months?

Are you very concerned, somewhat concerned, not very concerned, or not at 

all concerned that you will lose your job in the next twelve months? 

Next 12 months

Q116 How does your current monthly household income compare to what it was 

twelve months ago? Past 12 months

We selected these six questions from the NHS based on our criteria that a selected question 

either logically pertained to perennial considerations of potential home buyers or demonstrated 

that it was correlated statistically with future housing outcomes, or both. As measures of housing 

markets in the future, we used national averages over upcoming 12-month intervals for four 

outcomes: house prices, home sales, housing starts, and mortgage origination volume.

Our analysis indicated that increases in the HPSI since 2011 have been quite reliably followed by 

stronger housing markets.3 Additional evidence bolstered our confidence in the reliability of the 

HPSI. We used questions from the University of Michigan Surveys of Consumers that were 

analogous to the HPSI questions to construct an index for a longer time period, 1992-2013. Like 

increases in the HPSI, increases in the analogous, Michigan-based index tended to lead stronger 

housing markets. In head-to-head competition, however, the HPSI was better than the analogous 

index, the ICS, and the CCI at forecasting the four future housing market outcomes.

3 The NHS was conducted each month starting in June 2010. The HPSI begins in March 2011, when the NHS first 

asked consumers about their job concerns (question Q112B).

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2. Calculation of the Home Purchase Sentiment Index

How do we calculate the HPSI from the six questions?

Simply: Each month’s HPSI is based on the average of the net percent positive responses to each 

of its six questions. To that average, we added 63.5 so that the initial value for the HPSI in 

March 2011 equaled 60, which was close to the values then for both the ICS and the CCI.

HPSI = 

Q12+Q13+Q15+Q20B+Q112B+Q116

6 + 63.5

Q12: Good Time to Buy

(Very and Somewhat Good Time To Buy – Very and Somewhat Bad Time To Buy)

Q13: Good Time to Sell

(Very and Somewhat Good Time To Sell – Very and Somewhat Bad Time To Sell)

Q15: Home Prices Will Go Up (next 12 months)

(Home Prices Will Go Up – Home Prices Will Go Down)

Q20B: Mortgage Rates Will Go Down (next 12 months)

(Mortgage Rates Will Go Down – Mortgage Rates Will Go Up)

Q112B: Not Concerned about Losing Jobs (next 12 months)

(Not at All and Not Very Concerned about Losing Job – Very and Somewhat Concerned about Losing Job)

Q116: Household Income is Significantly Higher (past 12 months)

(Income is Significantly Higher – Income is Significantly Lower)

3. HPSI and Its Components, 2011 - 2015

Figure 1 shows that the HPSI initially fell, declining from March 2011 through the summer of 

2011. From then until the middle of 2013, the HPSI rose quite steadily and substantially. Figure 

1 also shows that responses to each of its six component questions contributed to that rise of the 

HPSI, except for the question about expected changes in mortgage interest rates. In the spring of 

2013, the HPSI then spiked up, primarily due to the uptick in “good time to sell.”

The HPSI then declined considerably during the second half of 2013. During 2014, the HPSI 

went up, down, and back up, with a downtick in the fall of 2014. The HPSI edged upward during 

the first half of 2015, but then dropped back to its December 2014 level in July.

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Figure 1: The HPSI and Its Component Questions

(March 2011 – July 2015)

4. HPSI Performance: Forecasting Housing Market Outcomes

The HPSI may prove valuable as a signal of future housing market outcomes either when used 

alone or when used to supplement other information, or both.

Table 2 below shows the relation of the HPSI for each month during 2011-2014 to 12-monthahead house price growth, home sales, housing starts, and mortgage originations. The positive 

entries in row 1 indicate that higher values for the HPSI tended to be followed by higher values 

for each of the four housing market outcomes in the future.

Asterisks on the row 1 entries reflect confidence that the estimated positive relations were not 

due to chance. The asterisks show that, for sales, starts, and originations, the estimated positive 

relations were statistically significant at less than the 1 percent level, implying that we are more 

than 99 percent confident that the estimated positive relations were not due to chance. The results 

for house prices were not as significant, but the single asterisk still implies that the probability 

that we found a positive relation by chance was less than 10 percent.

The R-squared statistics at the bottom of Table 2 show that the HPSI accounted for more than 70 

percent of the variation in future outcomes of these variables, except that the HPSI accounted for 

less than 8 percent of the variation in future house price growth. Assessment of the HPSI’s

strong forecasting performance during this period should take into account, however, that we 

finalized the six component questions partly on the basis of their forecasting performances

during this same period.

-80

-60

-40

-20

0

20

40

60

80

100

HPSI

-80

-60

-40

-20

0

20

40

60

80

100

Net Percent Positive

Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15

Q12 Good Time to Buy Q13 Good Time to Sell

Q15 Home Prices Will Go Up Q20B Mortgage Rates Will Go Down

Q112B Not Concerned about Losing Jobs Q116 Household Income is Significantly Higher

HPSI

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Table 2: Relations of 12-Month-Ahead Housing Market Outcomes to the HPSI

(Monthly, March 2011 – June 2014)

Explanatory 

Variables

House Prices Home Sales Housing Starts Originations

(1) (2) (3) (4)

1. HPSI 0.0593* 0.0322*** 0.0082*** 9.274***

(1.74) (10.04) (13.47) (12.28)

2. Constant 1.56 2.97*** 0.0073 -10.36

(0.65) (13.05) (0.17) (-0.19)

Observations 40 40 40 40

R-squared (%) 7.4 72.6 82.7 79.9

Notes: t-statistics in parentheses. Asterisks denote statistical significance at the 10 (*), 5 (**), and 1(***) percent 

levels.

5. Forecast Errors and Recent Changes in the HPSI

We analyzed whether the HPSI could have improved forecasts of housing markets during 2011 –

2015. To begin, we calculated the averages of housing market forecasts that were made in real 

time by a number of large organizations that had long focused on and forecasted housing 

markets. We then examined the deviations of actual, future from average forecasts made each 

month for housing market outcomes over the following four quarters. We analyzed whether 

recent changes in the HPSI would have provided reliable signals about housing beyond those in 

the forecasts. 

To analyze whether signals from the HPSI could have improved forecasts, we regressed the 

forecast errors for each outcome on recent changes in the HPSI. Table 3 shows the results for 

each of the four housing market outcomes. Although they were not all statistically significant, 

the positive estimated coefficients in row 1 imply that actual, future outcomes were stronger than 

forecasted when the HPSI had risen over recent months. The results in columns 1 and 4, then, 

suggest that forecasts would have been more accurate during this period if they had been raised 

(lowered) by amounts equal to recent strengthening (weakening) of the HPSI multiplied by the 

estimated coefficients in row 1 of Table 3.

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Table 3

Regressions of 12-Month-Ahead Forecast Errors on Recent Changes in the HPSI

(Errors=actual minus forecast averages, lagged three-month change in HPSI, monthly, July 2011 – June 

2014)

Explanatory Variable

House

Price

Growth

Home 

Sales

Housing 

Starts Originations

(1) (2) (3) (4)

1. HPSI

(lag of three-month change) 0.12* 33.7** 1.89 8.4

(1.89) (2.51) (0.44) (1.46)

2. Constant 1.65*** -198.6*** -45.4*** 24.2

(7.32) (-4.02) (-2.88) (1.15)

Observations 36 36 36 36

R-squared (%) 10 16 1 6

Note: t-statistics in parentheses. Asterisks denote statistical significance at the 10 (*), 5 (**), and 1(***) percent 

levels.

At least two caveats deserve mention. Until enough data accumulated to allow analysis and 

estimation of relations between forecast errors and the HPSI like those in Table 3, however, it 

would be difficult to calculate how much forecasts should be raised following increases in the 

HPSI. Prudence argues for care still when using these initial estimates because housing markets 

have been anything but typical in recent years. Second, because of “look-ahead bias,” the results 

here are biased in favor of finding that HPSI could have helped forecasts: We evaluated which 

variables to include in the HPSI by using the data for the entire 2011 – 2014 period, as well as to

estimate the relation of forecast errors to recent changes in the HPSI. Of course, real-time 

forecasts did not have the information in future data.

6. Comparing the HPSI with Indices of General Consumer Sentiment

Figure 2 shows the HPSI and two indices of general consumer sentiment, the ICS and the CCI, 

for March 2011 – July 2015. As housing market outcomes and the broader economy 

strengthened, over these four years, the indices each rose. 

But, some differences are also noticeable. One difference was that the HPSI fluctuated much less 

than the ICS or the CCI fluctuated. During the middle half of 2011, as the federal debt ceiling 

crisis waxed and waned, all three indices declined and then recovered. But, during that episode 

and thereafter, the swings up and down in the ICS and the CCI were more pronounced than those 

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of the HPSI. Second, the HPSI declined more than the other indices when long-term interest 

rates rose. On the heels of the Spring 2013 “taper tantrum” that raised bond and mortgage rates,

the HPSI quickly and clearly declined. In contrast, the general consumer sentiment indices only 

weakened months later. As the tantrum passed and rates fell back, the indices then resumed their 

climbs in late 2013. Figure 2 also shows that the HPSI diverged from the ICS and the CCI

recently. While the ICS and the CCI both continued and perhaps accelerated their ascents 

through 2014, the HPSI rose only modestly over 2014. And, in the first half of 2015, while the 

more-general sentiment indices declined noticeably, the HPSI eked out only a small rise. Then, 

all three indices declined noticeably in July 2015. These episodes show that, despite its 

similarities to general consumer sentiment indices, the HPSI seems to provide distinct 

information about housing and mortgage markets.

Figure 2: Comparing Consumer Sentiment Indices: HPSI, ICS, and CCI

(Monthly, March 2011 – July 2015)

40

50

60

70

80

90

100

Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15

Home Purchase Sentiment Index (HPSI) Index of Consumer Sentiment (ICS)

Consumer Confidence Index (CCI)

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7. Concluding Remarks

Its performance indicates that the HPSI provides useful and new information. Since the HPSI 

started in March 2011, increases in the HPSI have been quite reliably followed by stronger 

housing markets. That suggests that the HPSI may be useful as a stand-alone indicator for 

housing markets. In addition, we found that recent changes in the HPSI were correlated to 

varying degrees with forecast errors made on average by housing-forecast organizations. Those 

results suggest that forecasts for house prices particularly and for home sales and purchasemoney-mortgage originations less consistently could have been more accurate during this period 

if they had been adjusted somewhat in the direction of recent changes in the HPSI. Confidence 

that the HPSI sends reliable signals about housing markets was bolstered by our finding, for the 

much-longer 1992 – 2013 period, that increases in an analogous index that we built from data 

from the University of Michigan Surveys of Consumers were also reliably followed by stronger 

housing markets.

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