Confidence among American consumers sank to a two-year low last month as the slump in house prices across the United States gathered pace, sparking renewed warnings of US recession from economists.

Gloom over US prospects deepened after new figures suggested that the unrelenting decline in America’s housing market deepened still further during the autumn.

Average US national house prices succumbed to a 1.7 per cent drop in the third quarter, the largest quarterly fall for more than two decades, according to the closely tracked S&P/Case-Shiller index.

The continued descent in prices in the three months to September left them 4.5 per cent down on a year earlier, still worse than the 3.3 per cent annual drop recorded in the previous quarter.

Across 20 key metropolitan areas, all of which saw residential property values drop, house prices were down by 4.9 per cent in the year to the end of September, the report showed.

“There is no real positive news in today’s data,” said Robert Shiller, of Yale University, who jointly created the index. “Most of the metro areas continue to show declining or decelerating returns on both an annual and a monthly basis.”

The further losses in the housing market are being fuelled by a glut of unsold properties, despite sharp drops in building activity, that is being swollen by repossessions of homes from overstretched sub-prime borrowers.

The heaviest losses were recorded in Florida, with prices in the Tampa and Miami areas down by at least 10 per cent over the past year. Prices in San Diego, California, and Detroit, Michigan, were down by 9.6 per cent over the same period.

The slide in the housing market is taking a growing toll on economic sentiment among fretful Americans, a separate survey of consumers showed. Confidence levels fell for a fourth month in a row in November, to their lowest since October, 2005, in the aftermath of Hurricane Katrina, according to the regular poll from the Conference Board, a private research group. Its headline index of sentiment suffered a sharper-than-forecast plunge, falling to 87.3 in November, from a revised October reading of 95.2.

The fall in the main index was mainly due to a deterioration on Americans’ expectations of future conditions, which have hit the worst levels since March 2003, in the wake of the US-led invasion of Iraq.

“If sustained at this level — sustained in the key word — consumers’ spending will more or less grind to a halt, making it very difficult for the economy as a whole to avoid recession,” Ian Shepherdson, of High Frequency Economics, based in New York State, said.

Paul Ashworth, of Capital Economics in London, said that the decline in consumer confidence driven by the falling value of homes and shares and the soaring cost of energy backed the view that the US economy would shrink in the final quarter and grow by a meagre 1.7 per cent next year.

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