April 29 (Bloomberg) -- Confidence among Americans fell to a five-year low this month after home prices dropped by the most since at least 2001, signaling a deepening threat to consumer spending.

The Conference Board's confidence index fell to 62.3 in April, posting its biggest three-month slide since the last recession in 2001, the New York-based research group said today. House prices in 20 U.S. metropolitan areas dropped 12.7 percent in February from a year earlier, more than forecast and the most since S&P/Case-Shiller's records began seven years ago.

Treasuries rallied and stocks fell after the figures indicated no end in sight to the housing slump. Economists anticipate a report tomorrow will show gross domestic product growth slowed to 0.5 percent in the first quarter as home construction fell, employers cut payrolls and consumers struggled with a surge in gasoline prices.

``People sense that hard times are upon them,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who had forecast the confidence gauge would drop to 63. ``They feel the pinch from high gasoline prices, their main asset, their home, is declining in value, and jobs are becoming harder to get.''

The Conference Board's index dropped from a revised 65.9 reading in March that was higher than previously estimated. Economists had forecast the Conference Board's measure would fall to 61, according to the median of 67 forecasts in a Bloomberg News survey, from a previously reported 64.5.

`An Economy in Recession'

``The numbers are certainly consistent with an economy in recession,'' Jim O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut, said in an interview with Bloomberg Television. He said rising gasoline prices and a deteriorating job market hurt confidence this month.

The gain in Treasuries sent benchmark 10-year note yields down to 3.80 percent at 4:16 p.m. in New York, from 3.83 percent late yesterday. The Standard & Poor's 500 stock index dropped 0.4 percent to close at 1,390.94.

The home-price index was forecast to drop 12 percent following a 10.7 percent drop in January, according to the median estimate of 14 economists.

Home prices will probably keep sliding as foreclosures push even more properties onto the market just as stricter lending rules limit the number of qualified buyers.

``This is just one more strain for consumers, in addition to high energy prices and tight credit,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. ``Prices are going to continue to fall, probably through the end of next year.''

Monthly Decline

House prices dropped 2.6 percent in February from a month earlier, after a 2.4 percent decline in January, the S&P/Case- Shiller report showed. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month.

The group's 10-city composite index, with a history back to 1987, fell 13.6 percent in the 12 months ended in February, also the most on record.

Nineteen of the 20 cities in the index showed a year-over- year decrease in prices for February, led by a 23 percent slump in Las Vegas and a 22 percent decline in Miami. Charlotte was the only area showing a gain with a 1.5 percent increase.

Compared with January, homes in all 20 areas covered dropped in value.

Housing `Abyss'

``We're going to continue in this abyss for a while,'' said Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Inventories are getting worked off but it's a slow process. Sales and prices will go down.''

President George W. Bush said today in Washington that Americans are concerned about higher gasoline and food prices and about their mortgage payments. The administration anticipates that consumers will get a lift from tax rebate checks that started going out yesterday as part of a $168 billion stimulus package enacted in February.

Federal Reserve Chairman Ben S. Bernanke also anticipates the stimulus, and 3 percentage points of interest-rate cuts by the central bank since September, will help spur the economy later in the year. Fed officials will lower their benchmark rate by another quarter point tomorrow, to 2 percent, according to most economists surveyed by Bloomberg.

Home Sales

Declines in home prices have yet to stir buyers. The total number of houses sold in March dropped to a 5.456 million annual pace, the fewest since comparable records began in 1999.

Lenders are trying to devise ways to reduce foreclosures. Bank of America Corp., seeking approval of its Countrywide Financial Corp. takeover, yesterday said it will modify at least $40 billion in troubled mortgage loans over the next two years to keep customers in their homes. The move would help as many as 265,000 homeowners, company officials said.

GMAC LLC, the auto and home lender that General Motors Corp. sold to a private equity group, reported today it lost $589 million in the first quarter as more borrowers fell behind on mortgage payments.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

Eli Broad, a philanthropist and co-founder of KB Home, the fifth-largest U.S. homebuilder by revenue, yesterday said he expects home prices to drop another 20 percent.

`Years' to Go

``I don't think we're anywhere near a bottom in housing,'' Broad told Bloomberg TV yesterday at the Milken Institute Conference in Beverly Hills, California. ``We're going to have a big inventory of unsold, unoccupied homes that's going to take three or four years to clear out.''

Earnings at homebuilders are suffering as demand falters. Ryland Group Inc., the U.S. builder that targets first-time buyers in 15 states, last week reported a first-quarter loss as sales dropped.

``Business conditions have not improved,'' Chief Executive Officer Chad Dreier said in an April 24 conference call with analysts. Closings in the quarter dropped by almost a third from the same time last year and the average price fell by 14 percent, the company said.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.netBob Willis in Washington at bwillis@bloomberg.net

Last Updated: April 29, 2008 16:31 EDT