House price index (HPI)

A house price index (HPI) tracks how residential property prices change over time within a market. Unlike a simple median sale price, most HPIs are built to control for the fact that the mix of homes selling in any given period changes — more large homes selling one quarter can raise the median even if no individual home gained value.

The standard approach is the repeat-sales method, used by well-known indices such as Case-Shiller and by government agencies such as the FHFA in the US: it tracks price changes only for properties that have sold more than once, comparing each property's price to its own earlier sale price rather than comparing different properties to each other. This isolates actual appreciation from changes in the composition of homes sold, which a raw median or average price cannot do.

HPIs are a core input for tracking housing market cycles, informing mortgage underwriting and housing affordability index calculations, and comparing markets over time alongside rent burden and vacancy rate trends. Pitfalls include limited coverage in markets with few repeat sales, such as new-construction-heavy or rural areas, and the fact that an HPI reflects the price of homes that transacted, which can diverge from the value of homes that did not sell during that period, including in a slow market.