Aug. 28 (Bloomberg) -- Home prices in the U.S. fell by a record in the second quarter as sales dropped and mortgage lenders made it tougher to get a loan.

Home values declined 3.2 percent in the three months through June from the same period a year before, according to a report today by S&P/Case-Shiller.

The slump suggests sellers were taking further steps to attract buyers even before the recent rout in credit markets. Tighter loan restrictions, a result of delinquencies and defaults that have driven some lenders out of the market, will probably extend the two-year housing slump and apply more pressure to prices, economists said.

``Inventories are high, so house prices are going to take the hit,'' said Haseeb Ahmed, an economist at JPMorgan Securities Inc. in New York. ``They are going to go down further. The recent credit crunch is going to hurt but it's too early'' to determine by how much.

Consumer confidence in the U.S. this month dropped to the lowest level in two years, figures from the Conference Board also showed today.

Treasury securities were little changed after the reports. The yield on the benchmark 10-year note was 4.56 percent at 10:05 a.m. in New York, down 1 basis point from late yesterday.

Home prices in 20 U.S. metropolitan areas fell 3.5 percent in June from a year before, the most since S&P/Case-Shiller began compiling the index in 2001. The decline followed a 2.9 percent drop in May. The quarterly national index goes back to 1987.

Monthly Declines

The June index covering transactions in 20 metropolitan areas showed that home prices declined 0.4 percent from a month earlier, following a 0.3 percent decline in May. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes.

``The pullback in the U.S. residential real-estate market is showing no signs of slowing down,'' said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, said in a statement.

Shiller and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s. Shiller's 2000 book ``Irrational Exuberance'' predicted the stock market would slump and a second edition, published in 2005, said housing was in the midst of the biggest speculative boom in U.S. history.

Some reports suggested the housing market was stabilizing in July. New home sales unexpectedly rose last month, the Commerce Department said on Aug. 24. Median prices rose 0.6 percent from a year earlier, the report showed.

Accuracy

The S&P/Case-Shiller index and another by the Office of Federal Housing Enterprise Oversight track the same homes over time and more accurately reflect price trends, economists said.

Gauges from the Commerce Department and the National Association of Realtors 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.

The Realtors' group has cut its forecast for new and existing-home sales every month this year. On Aug. 8, it projected demand would fall to a five-year low in 2007.

Home demand is likely to show renewed weakness as turmoil in the credit markets pushes some mortgage lenders out of business and prompts others to tighten requirements for loans. That will put more pressure on prices, economists said.

Sinking values of mortgage debt led to a freezing of some firms' access to capital earlier this month.

Fed officials, who said all year that the housing slump was contained, have acknowledged the decline will extend further than they anticipated.

Optimism `Dampened'

``Recent data on actual housing-market activity have dampened my optimism'' about a bottoming-out in the industry, Richmond Fed President Jeffrey Lacker said on Aug. 21. Tighter credit conditions ``could further dampen residential investment,'' he added.

Investors and many economists expect the central bank to cut the main interest rate for overnight loans between banks by at least a quarter point at or before the Federal Open Market Committee's next meeting, on Sept. 18. Lacker said the impact of ``financial turbulence'' on the broader economy will determine the Fed's decisions.

Fifteen cities in today's measure showed a year-over-year decrease in prices for the month, led by an 11 percent drop Detroit. Values climbed in Seattle, Charlotte, Atlanta, Dallas and Portland.

10-City Index

S&P/Case-Shiller's 10-city composite index, which has a longer history, declined 4.1 percent from June 2006. The Chicago Mercantile Exchange last year began offering futures contracts based on that index.

Toll Brothers Inc., the largest U.S. luxury homebuilder, said Aug. 22 that its fiscal third-quarter profit fell 85 percent as it was forced to write down property values. Chief Executive Officer Robert Toll said in a statement that cutting home production ``is a key step in bringing housing markets back into equilibrium.

``Once equilibrium is achieved, we believe home prices will firm and customers, who are waiting on the sidelines, will have the confidence to enter the market,'' Toll said.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: August 28, 2007 10:16 EDT