Expect at least another full year of falling home prices before things get better. That’s the bottom line from Fannie Mae’s economists in their final forecast for 2011.

Home prices will end 2011 4.1 percent below a year ago for the second year in a row, as measured by the Federal Housing Finance Administration Home Price Index. Prices will lose a total of 8.2 percent over two years running but here is more bad news to come, according to Fannie Mae’s economists.

Fannie’s experts predict 2012 prices won’t be much better, falling an additional 2 percent during the first quarter and ending with a 0.89 percent year-over-year decline before home prices finally stabilize, turn the corner and slowly begin to improve the following year. They see prices increasing 2 percent in 2013.

The sour note on prices reflects recent price declines recorded by S&P/Case-Shiller and the CoreLogic house price index. “The recent decline in prices was mainly driven by distressed sales, as prices were up when distressed sales are excluded,” the economists said.

“Foreclosure activity seems likely to pick up as process issues are resolved, which should result in more foreclosure completions in 2012 (see Big Banks Created Foreclosure Boom). The Mortgage Bankers Association National Delinquency Survey showed that, after declining for three consecutive quarters, the foreclosure rate rose in the third quarter of this year. Job security will remain an obstacle to home purchases. If the European debt crisis deepens, it is likely that lending standards will be tightened further and mortgage spreads could widen substantially,” the Fannie Mae economists said.

“Home prices stabilized in the third quarter. However, they are poised to weaken in coming quarters, reflecting the winter season, an expected slowdown in economic activity, and a potential increase in distressed sales,” they said.