June 26 (Bloomberg) -- Home values in 20 U.S. cities fell the most in at least six years as higher mortgage rates and a record supply of properties for sale deepen the housing slump.

The S&P/Case-Shiller index of 20 metropolitan areas declined 2.1 percent in April from the same month a year earlier, led by Detroit and Miami, according to the report issued today by Standard & Poor's and MacroMarkets LLC. It was the fourth straight drop and the biggest decline since the index started in 2001. An index of 10 metropolitan areas fell by the most in at least 16 years.

The declines indicate that housing is sapping economic growth, according to Raymond Stone, chief economist at Stone & McCarthy Research Associates Inc. in Skillman, New Jersey. The U.S. economy expanded at a 1.9 percent pace in the first quarter from a year earlier, the smallest gain in almost four years.

Lower home prices show ``the likelihood of further deterioration of housing activity'' and ``ultimately broader problems for the economy,'' Stone wrote in a note to clients today.

Sales of new houses fell to an annual rate of 915,000 last month, 16 percent lower than a year ago, the Commerce Department reported today. The median price of a new home declined 0.9 percent to $236,100 in May from $238,200 a year earlier. About 15 percent of residential real estate transactions are new homes.

The National Association of Realtors said yesterday that the median price of an existing home dropped 2.1 percent in May from a year earlier to $223,700. The group also said that resales fell to 5.99 million at an annualized pace, the lowest level in almost four years.

Property Glut

A glut of available properties, higher mortgage rates and stricter loan requirements as a result of a surge in foreclosures on loans to people with limited or bad credit histories signal more price declines this year, economists said.

The average U.S. rate for a 30-year fixed mortgage was 6.69 percent last week, a gain of more than half a percentage point since the second week of May, according to Freddie Mac, the world's second largest mortgage-buyer.

``There's no end in sight to price declines in housing until supply and demand get back in line and inventories come down,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a financial consulting firm, in New York. ``We don't expect the correction to end any time soon.''

Year-on-Year

Single-family home prices fell 0.2 percent in April from a month earlier, following a 0.3 percent drop in March, according to the index. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes.

Treasuries were little changed, with the benchmark 10-year note yielding 5.09 percent at 1:56 p.m. in New York. The dollar was also little changed against the euro, at $1.3468 per euro.

Fourteen cities showed a year-over-year decrease in prices for the month, led by a 9.3 percent drop in Detroit and a 6.7 percent decline in San Diego.

The biggest increases in home values were in Seattle, where prices rose 9.6 percent, and Charlotte, North Carolina, with a 7 percent gain.

The 20-city index dropped 1.3 percent in March from a year earlier, less than the initial estimate of a 1.4 percent slump.

S&P/Case-Shiller's 10-city composite index, which has a longer history, declined 2.7 percent in April from a year earlier, the biggest decline since 1991. The measure fell 1.9 percent in March.

More Accurate

The S&P/Case-Shiller index and another gauge by the Office of Federal Housing Enterprise Oversight track individual homes through repeat sales and more accurately reflect price trends, economists say.

The measures from Commerce and the Realtors group can be influenced by changes in the types of homes sold. Higher sales of cheaper homes relative to more-expensive properties will bias the figures down.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

``The adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Federal Reserve Chairman Ben S. Bernanke said on June 5.

Fed policy makers are expected to hold the benchmark overnight lending rate between banks at 5.25 percent for the eighth straight meeting on June 28, according to a Bloomberg survey of economists.

A recovery in housing is partly being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to make it tougher for borrowers with poor or limited credit histories to get loans.

The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, the Mortgage Bankers Association said this month. Subprime loans going into default rose to a five-year high, and prime loans entering foreclosure also surged to a record.

To contact the reporters on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.netJoe Richter in Washington Jrichter1@bloomberg.net

Last Updated: June 26, 2007 14:55 EDT