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.
Fannie Mae Says: "Not So Fast, Mr. Smarty-Pants Case-Shiller Index Lover"
Minyanville, May 06, 2008 12:00 pm