American house prices fell by their fastest rate on record last month amid deep pessimism over the economy and the expectation of the worst Christmas shopping figures for 40 years.

The data reveal that the world's biggest economy shows no sign of recovery. This will increase pressure on Barack Obama, the US President Elect, to slash the rate of income tax as soon as he enters the White House on January 20.

According to the S&P Case-Shiller index - widely seen as the most authoritative measure of residential property values across America - house prices in the 20 US cities it surveys plunged 18 per cent in October, compared with the same month the year before. Prices fell 2.2 per cent in October against September.

Economists pointed out that the rate of decline in property values is accelerating rapidly and is expected to increase further next year because the market is overwhelmed with ten months' oversupply of unsold homes.

Dimitri Fleming, US economist at ING, the Dutch bank, said: “Within touching distance of the end of 2008, we can now already say that this year will see the biggest house price declines in over 100 years. Prices are expected to have plunged over 15 per cent in 2008. That's even more than during the Great Depression.

“Unless supply conditions improve very rapidly, we are very likely to see home values decline into 2010. Continued misery in the housing market means further pressure on banks' credit portfolios. Further losses lead to even tighter credit standards leading to more house price declines. A vicious circle threatens.”

Properties in Phoenix, Arizona, were the worst hit in October, down 32.7 per cent compared with the same month the year before. Homes in San Francisco fell 31 per cent over the same period while Las Vegas residential property dropped 31.7 per cent. There were no price rises in the 20 cities surveyed, a trend stretching over two consecutive months.

David Blitzer, chairman of the index committee at S&P, said: “The bear market continues. House prices are back to their March 2004 levels.” He said the slump was engulfing more of America with three new cities experiencing declines of more than 10 per cent for the first time as Atlanta, Seattle and Portland fell 10.5 per cent, 10.2 per cent, and 10.1 per cent respectively.

The news came as consumer confidence fell unexpectedly to its lowest level since 1967 as Americans panicked over whether they may soon join the 240,000 people a month losing their jobs. The consumer confidence index measured by the US Conference Board fell to 38 in December from a revised 44.7 in November. That is its lowest point since the group began compiling the index more than 40 years ago and below the previous low of 38.8 in October.

Wall Street had hoped that falling petrol prices would encourage Americans to take advantage of steep discounts available on the high street for items such as durable goods, clothing and furniture, and had expected a rise in confidence.

Meanwhile sales at US chain stores fell 1.8 per cent in the week ended December 27 compared with the same period the year before, according to the ICSC-Goldman Sachs weekly chain store sales index. The ICSC expects holiday sales in November and December to have fallen by as much as 2 per cent against the corresponding period in 2007. That would be the first decline since the ICSC began tracking holiday sales in 1969.

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