American house prices plunged at their fastest rate for 26 years during the first quarter of the year as the US property recession showed no sign of abating.

The average price of an existing single family home across the US fell 7.7 per cent during the first three months of the year compared to the first three months of 2007, leaving the average US house valued at $196,300.

According to the National Association of Realtors (NAR), sales activity also collapsed. Over the same period, total existing sales fell 22.2 per cent as buyers stayed away from the falling market for fear that prices would slide further.

Out of the 149 metropolitan areas surveyed by the NAR, 100 areas showed house price declines in the first quarter of the year.

Lawrence Yun, the association’s chief economist, said: "These are highly unusual results because there were very few jumbo loan originations [big mortgages] in the latest quarter, so sales are much slower in high-cost areas.

"Neighbourhoods with little sub-prime [mortgage] exposure are holding on very well, while prices have fallen in neighbourhoods with a wide prevalence of sub-prime loans because more foreclosed properties are being sold at discounted prices.”

Last month, Robert Shiller, professor of economics at Yale University, said that there was a "good chance" that the decline in US property will double, estimating that residential real estate values have already dropped about 15 per cent. In California, Sacramento house prices plummeted 29.2 per cent to $258,500 compared with last year while in Las Vegas real estate values fell by 20.2 per cent to $247,600. Those in Phoenix dropped 15.4 per cent to $222,200.

At the same time, retail sales during April fell 0.2 per cent, in line with Wall Street expectations, as Americans were forced to tighten their belts to cope with rising food and fuel prices. While the April numbers do not include the expected impact of Washington's $150 billion tax rebate stimulus package - cheques were sent out over the last two weeks - economists are still forecasting worse to come for May.

Ian Shepherdson, chief ecomomist at High Frequency Economics, said: "Expect a big drop next month. Sales ex-food, gas, autos and building materials rose 0.3% in both March and April but the year on year rate is trending remorselessly lower; worse to come."

While Wal-Mart, the world's biggest retailer, unveiled a better than expected 6.9 per cent rise in first quarter profits, it presented a guarded outlook for the market.

Lee Scott, chief executive of Wal-Mart, said: "There are still uncertainties during the rest of the year. The economy is playing a critical factor in 2008.

Wal-Mart earned $3.02 billion in the three months ending April 30 compared with the corresponding period the year before. Typically, Wal-Mart benefits when the US experiences a sharp economic slowdown as Americans shop at cheaper stores to make their salaries stretch further.

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