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Methodology

6. How is the FHFA HPI calculated?

The methodology used to construct the indexes is a modified version of the Case-Shiller® geometric weighted repeat-sales procedure. A detailed description of the HPI methodology is available at: http://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/HPI-Technical-Description.aspx.

The repeat-sales procedure estimates price changes using repeat transactions on the same property units over time. This approach helps to control for differences in the quality of the houses comprising the sample and is the reason the FHFA HPI is referred to as a "constant quality" index.

The monthly indexes are calculated in the same way as the quarterly and annual indexes except the time period is controlled for more directly. In the monthly indexing model, all the transactions for the same month are aggregated and separate index values are estimated for each month. To construct the quarterly index, every transaction from the same quarter is aggregated and index values are estimated using the assigned quarters. The same approach is used with the annual indexes. For advanced data users, this means that dummy or constant variables are not included as additional time-varying controls.

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