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| Methodology of Indices |
| Written by Amy Anderson | |
| 07.25.2007 | |
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Discuss this article on the forums. (0 posts) In my last post, I covered many of the acronyms you’ll find in our reports. Today, I’ll be covering the various indices present in our market dashboard reports. An index is a tool that simplifies the measuremen  t of movements in a numerical series. In general the base is equal to 100. Therefore, index of 110 signifies there has been a 10-percent increase in price since the reference period; similarly an index of 90 means a 10-percent decrease. Movements of the index from one date to another can be expressed as changes in index points.Pending Home Sales Index (Report 2.2) NAR's Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity by measuring housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. Affordability Index (Report 3.8) A measure of the financial ability of U.S. families to buy a house where 100 represents that families earning the national median income have just the amount of money needed to qualify for a mortgage on a median-priced home; higher than 100 means they have more than enough and lower than 100 means they have less than enough. NAHB Affordability Index (Report 1.1) The National Association of Home Builders (NAHB) affordability index measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by NAR. The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The prevailing mortgage interest rate is the effective rate on loans closed on existing homes from the Federal Housing Finance Board and HSH Associates, Butler, NJ. These components are used to determine if the median income family can qualify for a mortgage on a typical home. To interpret the indices: a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment. For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80% of a median-priced existing single-family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home. The calculation assumes a down payment of 20% of the home price and it assumes a qualifying ratio of 25%. That means the monthly P&I payment cannot exceed 25% of the median family monthly income. Industrial Production Index (Report 1.8) The production index is an important short-term business indicator. The industrial production index aims to measure a monthly frequency of the ups and downs of industrial production over a long period of time. These monthly numbers allows users to identify turning points in the economy at an early stage. Housing Related Producer Price Index Components (Report 2.5) The Housing Related Producer Price index uses the CPI (link to previous post) for major building materials such as Concrete, Gypsum, Framing Lumber Components, and Structural Panel Components to measure the relative change in construction costs. National Home Price Indices (Report 2.8) The HPI is a broad measure of the movement of single-family house prices. The HPI serves as a timely, accurate indicator of house price trends at various geographic levels. 
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