U.S. home prices posted their sharpest first-quarter decline since the government began tracking the data 17 years ago.
The Washington-based Office of Federal Housing Enterprise Oversight said that home prices fell 3.1 percent in the first quarter compared with last year.
The index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.
OFHEO, which regulates mortgage lenders Fannie Mae and FreddieMac, bases its price index on repeat sales of homes mortgaged through both agencies.
"The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation," Patrick Lawler, the agency"s chief economist, said in a prepared statement.
Prices fell in 43 states, with California and Nevada showing the biggest declines.
Home prices dropped by more than 8 percent in those states.
The government index is calculated by tracking mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac.
Legislation enacted in February temporarily raised the limit to as much as $729,750 in high-cost areas.
The government index focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year.
Another reading that includes such properties and focuses on major U.S. cities, the Standard & Poor"s/Case-Shiller has shown larger declines.
Meanwhile, Federal Reserve Governor Randall Kroszner said the Fed considers the nation"s high and rising foreclosure rate an "urgent problem," adding that non-traditional remedies are needed to help the homeowners with non-traditional mortgages and financial problems who dominate the foreclosure statistics.
"High loan-to-value ratios at origination, combined with stagnant and eventually declining home prices, are a key aspect of the recent rise in delinquencies and foreclosures," Krosner said in a speech prepared for the NeighborWorks Training Insititute in Cincinnati.
More than 40% of subprime loans in 2006 had loan-to-value ratios above 90% and many mortgage originators indulged in "risk-layering," Krosner said.
Risk layering is adding piggyback loans, negative amortization and other features the industry called "non-traditional" or "exotic" to enable a would-be buyer to get a loan.
"Taken individually, these risk factors may not have significantly raised the likelihood that a homeowner would fall behind on payments; taken together, however, these risks materially increased this likelihood," Kroszner said.
Combine the high loan-to-value ratios with falling prices and homeowners saw what little equity they had disappear, and with it their ability to refinance into a more sustainable mortgage and their incentive to try to stay in their homes.