If you ever invested in real estate or are just interested in this sector, you have probably heard about HPI. No wonder, as HPI, or House Price Index, is widely used by investors when they are evaluating real estate assets in different countries. So what is it, why is it so important and how exactly can it help investors to select the right properties? Let's find out.
Basically, HPI is a broad measure of how house prices move in a particular country or a region1. It shows the fluctuations in real estate prices over a certain period of time. The period over which HPI is measured and reported may be different: by quarter, month, year, or even decade.
HPI is very significant as it acts as an excellent analytical tool for evaluating past house price trends. As a result, an investor can make an approximate prediction of what could be happening with real estate prices in each particular country or city in the next month, quarter, or year. HPI can be helpful in estimating changes that concern rates of overall mortgage defaults, prepayments, national house affordability and so on1. Thus, an investor can estimate approximately how an economic crisis or economic growth experienced by a particular country impacts the overall cost of residential properties there. For example, the economic development of a country usually results in positive movements in the real estate market and creates new investment opportunities. As a result, based on the information given by an HPI, an investor can make an informed decision; for example, if he or she may choose to invest in the German real estate market due to its stable HPI in the past few years.
If we break down the HPI and try to determine how it is calculated, we will see that it is based on different variables. These variables include conventional and conforming mortgages approved over a period1. The mortgages selected are usually based on single-family properties. This gives investors an opportunity to receive a defined picture of the HPI in that country/region.
As you can see, HPI is indeed very important for the evaluation of real estate prospects. We advise every investor to carefully examine it when they invest in a new country and choose a real estate object thoughtfully, and from an analytical point of reference.