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Fannie Mae's Home Prices Ex-Foreclosures

Thursday, May 08, 2008 | 06:59 AM

in Corporate Management | Data Analysis | Real Estate

Yesterday morning, we discussed a few fun Fannie Mae (FNM) factoids from their recent quarter and conference call.

Part of that discussion noted that Fannie's CEO sees 7-9% decrease in home prices in 2008 (previous estimate: 5 - 7%).

There's one small rub to that: As Kevin Depew notes at MV, Fannie Mae does not use foreclosed properties in its price index. Thus, FNM significantly understates home price declines.

Let's go to Kevin:

"The fine print at the bottom of the slide is important because it speaks to the use of the case-Shiller index versus Fannie Mae's own index upon which their price projections are based. According to Fannie Mae, because the Case-Shiller index is value-weighted, it places greater weight on higher cost metropolitan areas. Fair enough.

Using the Case-Shiller index methodology, Fannie Mae says its projections would move from a 7-9% home price decline for 2008 to 10-13%, and from 15-19% peak-to-trough to 20-25%. There's just one catch with those projections increases. They strip out the impact of foreclosure sales.

As Fannie Mae observes, "Foreclosure sales tend to depress the S&P/Case Shiller index relative to the Fannie Mae index."

Another awesome new indicator: In addition to Inflation ex-Inflation, we now can add Home prices ex-foreclosures.

Nice!

Source:
Fannie Mae Says: "Not So Fast, Mr. Smarty-Pants Case-Shiller Index Lover"
Kevin Depew
Minyanville, May 06, 2008 12:00 pm
http://www.minyanville.com/articles/fnm-housing-mortgage-economy-pep-ko/index/a/17042

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Comments

Fannie is giving the "core" home sales figures.

...since Fannie doesn't strip out people selling their homes due to rising food and energy costs. Nor do they adjust for the births / deaths causing a sale either, so there.

I don't know what all the complaints are about.

Posted by: VennData | May 8, 2008 7:31:15 AM

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