American house prices fell at their fastest rate on record in August as Wall Street braced itself for at least another year of real estate misery.

According to the S&P Case-Shiller US index — widely viewed as the most authoritative measure of American residential real estate values — house prices across the 20 US cities surveyed fell by 16.6 per cent in August compared with the same period the year before.

Economists who were interpreting the data reckoned that house prices in August had slipped 1.1 per cent compared with July.

The numbers are grim reading. The pace of monthly decline has not slowed from July and none of the 20 cities has experienced a gain in house prices for five months. Many economists believe that the American housing slump is, at worst, half way through, and at best, left with another year to run before any glimmer of recovery will be seen.

Ian Shepherdson, chief US economist at High Frequency Economics, said: "Prices have now fallen by 20.7 per cent from their May 2006 peak but are clearly nowhere near bottom yet. Expect a total fall of 30 per cent."

Case-Shiller also calculates another house price survey where real estate values of 10 cities across the US are monitored, rather than 20. According to the narrower index, home prices fell even more sharply, plunging 17.7 per cent in August.

Houses in Las Vegas, Miami, Phoenix and San Francisco suffered the biggest price falls, sliding between 25 per cent and 30 per cent in August compared with the same period last year.

Wall Street scrutinises such housing data because the real estate slump sits at the core of the American financial crisis.

As house prices continue to fall, default rates on mortgage repayments rise and force lenders to write off more bad debt from their books.

In turn, the weakening mortgage portfolios held by America's banks weigh down their share prices and limit their ability to raise more money for themselves.

The main reason that US house prices are continuing to slide is that there is enormous over-supply of unsold homes, which depresses values and clogs up the market.

In a healthy market, there is around 6 months' over supply, in the current US troubled market, there is at least a year's worth of unsold properties. It is now possible to buy a home in depressed cities such as Detroit on eBay for less than $1,000.

Dimitry Fleming, US economist at ING, the Dutch bank, said: "Despite a reduction in the number of homes for sale, supply is still enormous. We expect no end to the price declines till end-2009.

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