Home prices across the U.S. declined 1.7% on a seasonally adjusted basis during the first quarter of 2008, according to the Office of Federal Housing Enterprise Oversight (OFHEO).

The number, while small in comparison to indices produced by both the National Association of Realtors and Standard & Poor's Case-Shiller, was nonetheless the biggest drop ever in the 17-years OFHEO has been calculating the purchase-only House Price Index (HPI). The primary reason the number is lower is that OFHEO tracks only so-called conforming loans on houses that are sold at lower price points.

The first-quarter decline added to the 1.4% drop between the third and fourth quarters of 2007, bringing the reduction in home prices during the past year to 3.1%. The all-transactions House Price Index (HPI), which includes data from home sales and appraisals for refinancings, showed less weakness than the purchase-only index. The all-transactions HPI fell 0.2 percent in the latest quarter and was flat over the four-quarter period.

OFHEO Director James B. Lockhart said in a statement, "These substantial home price declines bring positive and negative news. For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets. To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news, as are continued low mortgage rates."

OFHEO reported that on an inflation-adjusted basis, home prices fell 7.7% during the past year, basing the calculation on the 3.1% drop in purchase only home prices and a 4.6% increase in the prices of other goods and services. "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 in previous periods," said OFHEO chief economist Patrick Lawler.

Among the chief findings in this quarter's report were:

Prices fell in the latest quarter in 43 states.

Eight states exhibited quarterly price declines of more than 3% and two states--California and Nevada--saw prices decline more than 8%.

Every Census Division experienced a price decline in the latest quarter.Prices were weakest in the Pacific Census Division, which experienced a 5.9% price decline in the quarter.