Fannie Mae’s Home Prices Ex-Foreclosures

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"
Kevin Depew
Minyanville, May 06, 2008 12:00 pm

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What's been said:

Discussions found on the web:
  1. VennData commented on May 8

    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.

  2. PrahaPartizan commented on May 8

    I feel like I’ve fallen down the rabbit hole into this Alice in Wonderland world and can’t get up. Which came first? Did we first develop the lousy policies and then crafted these distorted metrics to justify them? Or, did we find ourselves with these incredible indices which led to formulating disastrous policies? Is it “egg –> chicken” or is it “chicken –> egg?” How do we get back to sane policies when it seems the inmates are running the asylum?

  3. John Forman commented on May 8

    Barry – I was on the Fannie call the other day. The specifically stated that their forecast for home price declines implied a fall of more than 25% peak-to-trough on Case-Shiller. Since the latter is down about 15% from its peak right now, the implication is that another 10%+ is yet to come.

  4. DonKei commented on May 8

    Just so you know, too-big-to fail Fannie accounts for about 80% of the originations out there today. The nationalization of the mortgage industry w/ funny money from the fed continues apace.

  5. TheFinancialNinja commented on May 8

    Just wait until we measure all things economic using absolute numbers only. Those pesky negative signs and negative numbers should be banned forever.

    Economic numbers ex-all things negative.

    We would have a new paradigm were things only go up and only growth is possible.

  6. dug commented on May 8

    Kind of eliminates the pure incompetence excuse for past and future failures of management and oversight when they take such overtly deceptive actions.

  7. Renting in Mass commented on May 8

    Home prices ex-foreclosures is how they provide data in Massachusetts too. The Mass Association of Realtors has always done it that way, and in January the better data source (The Warren Group) switched their methodology to remove foreclosure prices. It’s frustrating.

  8. Joe commented on May 8

    The reason I could see to eliminate foreclosure sales are the facts that these houses mostly have not been maintained and often times destroyed. For this reason, they do not reflect the true “housing market”. Just offering an argument on the other side, don’t know what the right answer is here.

  9. Joshua commented on May 8

    I read somewhere where FNM does not recognize a default until it’s been delinquent for 24 months! Anyone know if this is true?

  10. michael schumacher commented on May 8

    Just goes neatly with the bill that allows banks to ignore any price for an asset if it was a forced sale.

    Nice……I wish I could gloss over my mistakes with 2% money FOREVER. Recession? not here.


  11. Joshua commented on May 8

    Barry, I know this is off topic, but I was wondering….

    Today the came out with whoelsale inventory data and the news has not given it any weight.

    I noticed a downward revision in inventories. Wouldn’t this not cause a downward revision in GDP? That bogus .6% is getting even worse.

    Thanks for the insight

  12. michael schumacher commented on May 8

    from what I’ve read the inventory portion of the GDP was responsible for .8% of “growth”

    Read into that what you want….


  13. kio commented on May 8


    there are many definitions of inflation and even more estimates related to these definitions. They all have some merits and caveats.
    To my mind, you are trying to formulate the definition of some TRUE (aggregate)inflation. It would be very helpful if you could give us your vision (quantitative definition) of this true inflation. How does it smell?

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