When Fannie Mae reported its latest quarterly loss late Tuesday, it also provided some good news: home prices aren't falling as steeply as they have over the past four years. In fact, prices may barely decline in 2011. Does this indicate that the housing market is finally nearing its bottom? It may, but we have little reason to believe 2012 will be a great year for home prices.
Here's the chart showing Fannie's home value index from its third quarter credit supplement:
As you can see, through the third quarter home prices haven't even declined 1%. Although the fourth quarter numbers aren't accounted for here, we'd have to see a pretty sharp decline for 2011 to near the 2010 decline.
And the decrease that Fannie is showing here appears to be in-line with the S&P/Case-Shiller Index move for 2011 thus far. The Fannie Index is a little different from the S&P/Case-Shiller Index, however. Fannie's provides a better estimate of the median home price decline, since its index is weighed by number. S&P/Case-Shiller's Index weighs by property value, which provides a better average. S&P/Case-Shiller also includes foreclosed home sales, which Fannie argues exaggerate market value declines.
From the chart, it looks like Fannie and S&P/Case-Shiller both agree that home price declines are slowing. Does that mean happier days are coming for the housing market? Not necessarily.