The value of an American home had slumped almost 27 per cent by the end of last year compared to the peak of the property boom, according to the definitive survey of US house prices.

The data was released as Ben Bernanke, the Federal Reserve chairman, warned the recession could extend beyond this year unless the government succeeds in stabilising the financial markets with strong action.

The Standard & Poor’s / Case-Shiller home price index was down 26.7 per cent last December from its peak in the second quarter of 2006. Houses in the US are now worth the same as they were in the third quarter of 2003.

Last September’s collapse of Lehman Brothers set off a crisis of confidence across global markets, accelerating falls in house values, the survey showed.

The final three months of 2008 saw property prices drop at a record rate, plummeting 18.2 per cent – the biggest year-on-year decline in the index’s 21-year history.

The month-on-month drop from November to December was 2.2 per cent, the biggest fall since last February. The index looks at price movements in 20 key metro areas, including New York, Washington, Boston and Los Angeles.

David Blitzer, chairman of the index committee at S&P, said that none of the areas studied had any good news to offer. "There are very few, if any, pockets of turnaround that one can see in the data," he said. "Most of the nation appears to be on a downward path."

The figures were worse than expected by economists.

Ian Shepherdson, chief US economist at High Frequency Economics, predicted further declines despite the mortgage rescue plan announced by the White House last week.

"The massive inventory overhang in the market and the surge in foreclosures mean prices will continue to fall rapidly," he said. "The administration’s rescue plan will, in time, slow the rate of decline but it won’t happen immediately."

Paul Dales, US economist at Capital Economics, said that he expected another 10 per cent to be wiped off property prices before the slump petered out.

In testimony to the Senate Banking Committee today, Mr Bernanke said the economy is likely to keep shrinking in the first six months of this year. Mr Bernanke hoped that the current recession will end this year, but said there were significant risks to that forecast. Any economic turnaround will hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.

“Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Mr Bernanke said. Fed policymakers think that a “full recovery; of the economy is likely to take more than two or three years, Mr Bernanke added.

Although Mr Bernanke didn’t mention any financial institutions by name, Citigroup - the industry’s troubled banking giant - apparently is in line for additional government help. When pressed about how much more money the government might need to prop up America’s troubled banks, Mr Bernanke didn’t give a figure and said it would depend on the health of banks, how the economy evolves and the margin of safety that regulators believe is needed.

Senator Christopher Dodd, chairman of the panel, said the economy’s problems “spread like cancer; and told Mr Bernanke that he has an “extraordinarily difficult task ahead of you; in turning the situation around.

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