FHA is required by statute to set limits on the dollar amount of individual loans it will insure. These limits are based, in part, on local median home prices. FHA relies heavily on the survey to measure median home sales prices because it is the most comprehensive source of published house price data readily available to the agency. The Office of Federal Housing Enterprise Oversight (OFHEO) also collects information on home sales. The Finance Board and the Office of Federal Housing Enterprise Oversight Usually Estimate Similar Median Prices

In about two-thirds of the 42 metropolitan areas we reviewed, no substantive difference existed in the 1997 median house prices calculated with Finance Board and OFHEO data. As figure 1 shows, in 27 of these areas, the difference between the higher and lower estimates of median prices according to the two sets of data was 5 percent or less. In an additional 10 areas, the two agencies’ estimates were within 10 percent of each other. For the 15 areas where the two estimates differed by more than 5 percent, the Finance Board estimated a higher median home sales price than OFHEO in 10 areas, while OFHEO estimated a higher median in 5 areas. Less than or equal to 5% (27 areas)
Because one basis for measuring the median price—the Finance Board’s data—does not result in a substantively different price than another—OFHEO’s data—for about two-thirds of the areas we reviewed, FHA loan limits in those areas would be similar using either source of data. Officials See Data Sources as Mutually Supportive, With Differences Largely Due to Jumbo Loans

The Finance Board’s data were a reasonable measure of an area’s median home sales price (for homes with conventional financing), according to officials at the Finance Board, Fannie Mae, and Freddie Mac. Specifically, the Finance Board’s data included purchase prices up to $750,000 and loan amounts up to $500,000.Conversely, OFHEO’s data excluded all jumbo loans because they exceed the conforming loan limit ($214,600 in 1997), meaning neither Fannie Mae nor Freddie Mac could have purchased them. Median House Prices Are Lower When They Are Based on Conventional and Government-Insured Loans

Supplementing the Finance Board’s or OFHEO’s data with information on prices of homes financed with government-insured mortgages reduces the estimates of median prices across the board and within all of the metropolitan areas we reviewed. When we added these data to OFHEO’s data, median prices were 6 to 31 percent lower. Agency Comments

We provided a draft of this report to the Department of Housing and Urban Development (HUD), the Federal Housing Finance Board (the Finance Board), the Office of Federal Housing Enterprise Oversight, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation for their review and comment. The Finance Board agreed that our analysis indicates its survey is a reasonable measure of 1997 home sales prices in the areas we reviewed. For the 42 areas, we obtained (1) from FHA and the Department of Veterans Affairs, data on the median price of all of the homes sold for which the federal government insured or guaranteed the mortgages and (2) from the Finance Board, the median purchase price of all the homes sold whose mortgages were reflected in the Board’s monthly interest rate survey. Because homes financed with government-insured loans are typically lower priced and neither the Finance Board nor OFHEO includes data on government-insured mortgages, we also calculated median purchase prices that included data from FHA and the Department of Veterans Affairs with the data from OFHEO and the Finance Board. We also discussed the results of our analysis comparing median prices from the various sources with officials from the agencies that provided these data.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on housing prices from sources other than the Federal Housing Finance Board, focusing on: (1) comparing data on house prices from the Finance Board with data the Department of Housing and Urban Development's Office of Federal Housing Enterprise Oversight (OFHEO) collects to measure house price changes; (2) views of officials of the agencies involved on the results of this analysis; (3) the effect on median prices of supplementing the Finance Board's and OFHEO's data with information each does not already include on lower-priced homes with government-insured mortgages; and (4) the Federal Housing Administration's (FHA) recent efforts to explore alternative sources of data for measuring median home prices.

What GAO Found

GAO noted that: (1) the Finance Board and OFHEO's estimates of 1997 median home sales prices were similar in about two-thirds of the metropolitan areas GAO reviewed; (2) in 27 of the 42 areas, the two agencies' estimates were within 5 percent of each other; (3) loan limits based on either set of data would be similar in these areas; (4) for the remaining 15 areas GAO reviewed, the Finance Board estimated a higher median home sales price in 10 of the areas, while OFHEO's estimate was higher in 5 areas; (5) officials familiar with these data cited the low number of substantive differences in GAO's analysis as an indicator of the validity of the Finance Board's data; (6) because no substantive difference existed between the two sets of data in about two-thirds of the areas GAO reviewed, the officials indicated the Finance Board's data are a reasonable measure of an area's median sales price for homes without government-insured financing; (7) in those areas for which substantive differences did exist, officials from the different agencies involved agreed the reason was that the Finance Board includes larger loans, and thus higher home purchase prices, in its survey than does OFHEO; (8) the Finance Board's 1997 data include loan amounts up to $500,000 and house purchase prices up to $750,000; (9) OFHEO's data for 1997 included no loans greater than $214,600; (10) these officials also cited normal variations associated with surveys and statistical sampling as a reason for some differences between the two sets of data; (11) supplementing the data from either the Finance Board or the OFHEO with data on homes financed with government-insured loans would lower the estimated median home sales price in any given area by 2 to 31 percent; (12) the purchase prices of homes financed with mortgages insured by FHA and the Department of Veterans Affairs are, on average, lower than those of homes bought with privately insured financing; (13) these lower prices result from the limits on the size of individual loans FHA may insure and because government-insured financing tends to be focused on first-time homebuyers; (14) FHA is engaged in an effort to use additional sources of data; (15) FHA relies heavily on the Finance Board's survey for the data it needs to set its loan limits, but to a limited extent it has also supplemented that survey with data its field offices gather on local home sales prices; and (16) FHA is considering using data on loans that neither the Federal National Mortgage Association nor the Federal Home Loan Mortgage Corporation has purchased.