Dec. 30 (Bloomberg) -- Phoenix, the desert city that three years ago led the U.S. in home price growth, had the nation’s worst housing market during October as sales of foreclosed properties depressed prices.

The cost of a single-family home plunged 33 percent from a year earlier, according to an S&P/Case Shiller index. The decline was worse than Las Vegas, where prices fell 32 percent, and San Francisco, where they dropped 31 percent. U.S. house prices fell 18 percent in October, a record in eight years of data.

Arizona had 11,000 notices in October of so-called trustee sales, or foreclosure auctions, according to RealtyTrac Inc., a real estate data firm in Irvine, California. Foreclosure sales reduce the value of similar properties in the same area as sellers who aren’t in distress are forced to drop their prices to compete.

“This was a case of the higher they climb, the faster and harder they fell,” said David Blitzer, chairman of the index committee at S&P. Phoenix home prices at their 2006 peak had almost tripled within nine years, he said.

“Foreclosures have been increasing very sharply, especially in the worst-hit states of Florida, Arizona, Nevada and California, and foreclosure sales typically come in with lower prices,” Blitzer said.

Nationally, the fall in home prices has accelerated since the October period covered by the Case Shiller report. Sales of single-family homes in November dropped 7.6 percent from the prior month, the most in two decades, according to the Chicago-based National Association of Realtors. Resale prices fell 13 percent from a year earlier, the biggest collapse since the Great Depression of the 1930s.

‘Buyer Pessimism’

The Realtors’ group said it expects a gain in U.S. home transactions in 2009. Sales probably will rise to 5.19 million from 4.96 million in 2008, the association said in a Dec. 9 forecast, its most recent projection.

Prices may continue to decline in 2009, the group said, without citing a specific estimate.

“Buyer pessimism could cause prices to overshoot downward, resulting in further economic deterioration,” Lawrence Yun, NAR’s chief economist, said in the Dec. 9 report.

Almost half the gains in Phoenix home prices during the five- year U.S. real estate boom have been erased. The city’s housing values doubled in the five years prior to the July 2006 peak of the U.S. median home price, according to data from the Federal Housing Finance Agency.

In the last quarter of 2005, median home price in Phoenix gained 40 percent from a year earlier.

Since then, the median price has plummeted 41 percent, according to the S&P/Case Shiller index, which tracks the percentage change in values without providing a dollar figure for median or average sales price.

The median price of a single-family home in Phoenix was $185,100 in the third quarter, 28 percent lower than the same period a year earlier, according to the National Association of Realtors.

Statewide, home sales in Arizona rose 49 percent in the third quarter, according to the trade group. That was the third-biggest gain in the nation, behind Nevada and California. In the same period, U.S. home sales dropped 7.7 percent.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: December 30, 2008 15:06 EST