U.S. home values fell 3.1% in the third quarter from last year, according to the Freddie Mac conventional mortgage home price index. Freddie Mac calculates property values based on home purchases with a conventional mortgage. Values also fell 1.9% from the previous quarter and in eight of the nine Census Divisions in the latest period. Only the New England division saw a 0.3% increase. Home prices in the latest Standard & Poor's/Case-Shiller index also showed a continued slump, dropping 1.5% in the 20-city composite index for the third quarter. Freddie Mac Deputy Chief Economist Amy Crews Cutts said home sales continue to decline and distressed homes, which include foreclosures and short sales, still account for a large part of the market. Anthony Sanders, real estate finance professor and scholar at the Mercatus Center at George Mason University said he doesn't expect any good news soon, citing fears that the mortgage interest tax deduction — one of the most influential incentives to owning a home — may be scaled back next year. "People are still fearful of jumping into housing again despite low interest rates. They are still not sure what is going to happen with taxes in January, and they don’t want to commit," Sanders said. But Crews Cutts said the market will eventually recover. "Our forecast is for economic conditions to improve, which should lower delinquency rates further over the coming year and relieve some of the downward pressure on home prices," Crews Cutts said. Write to Jon Prior.