updated 5/22/2008 3:28:22 PM ET 2008-05-22T19:28:22

A home-price index considered to be the most comprehensive reading of the U.S. market posted the sharpest decline in its 17-year history, and analysts say housing has yet to bottom out.

Rapidly falling home prices in California, Florida and Nevada skewed the national results.

The Office of Federal Housing Enterprise Oversight said Thursday that home prices fell 3.1 percent in the first quarter compared with last year.

It was only the second quarter of price declines since the index started in 1991. The price index first declined on a year-over-year basis in the final quarter of 2007, when it dropped 0.45 percent.

Another widely followed reading, the Standard & Poor’s/Case-Shiller index, has shown larger declines for major U.S. metropolitan areas. But analysts say the government index provides a more comprehensive reading of nationwide housing market.

That’s particularly true for midwestern states, where prices never skyrocketed and have been less affected by the real estate downturn.

“Most people don’t live in a Miami condo,” said Michael Englund, chief economist with Action Economics in Boulder, Colo.

Still, declines in the government index, which focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year, show the depth of the housing market’s troubles.

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 also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

“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.

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.

Wall Street analysts have tended to focus on the S&P index, an update of which is due next Tuesday, as a way to measure the value of securities backed by subprime mortgages and loans to borrowers in big metropolitan areas.

Earlier this month, economic forecasters surveyed by the Federal Reserve Bank of Philadelphia projected the government index would show a 5.4 percent annual decline in the fourth quarter of 2008. The survey projected the reading would not recover until early 2009.

Adam York, an economic analyst with Wachovia Corp., said Thursday’s data was unsurprising. “It was pretty widely expected that we would see declines this quarter and for some time to come,” he said.

The housing market is facing numerous troubles as buyers stay on the fence and rising mortgage defaults dump more homes on an already glutted market. In addition, many banks have raised their lending standards in response to the surge in mortgage defaults.

Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 5.98 percent this week. That was down from 6.01 percent last week and the lowest level in five weeks.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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