May 22 (Bloomberg) -- U.S. house prices sank 3.1 percent in the first three months of 2008 from a year earlier, the second quarterly decline since June after 13 years of increases, according to a government report.

Prices for previously owned single-family homes fell in 43 states, with values in California and Nevada tumbling more than 8 percent, the Office of Federal Housing Enterprise Oversight, known as Ofheo, said today in Washington.

The inventory of unsold properties continues to swell, pushing down home prices. Prospective buyers face difficulty obtaining financing as lenders tighten standards and cut back on the number of mortgages they are writing, according to Paul Kasriel, chief economist at Northern Trust Corp. in Chicago.

``It's a dismal picture, there's no way around it,'' Kasriel said. ``A complicating factor is the fact that so many homeowners owe more on their mortgages than their houses are worth. This is a financial crisis. You can't put lipstick on this pig.''

The number of mortgage originations is expected to drop 18 percent this year from 2007, according to the Washington-based Mortgage Bankers Association.

Reduced Lending

Almost two-thirds of U.S. banks have raised standards for mortgages to their most creditworthy borrowers, and three-fourths made it more difficult for people with limited or tainted credit to get loans, according to a Federal Reserve survey of senior loan officers published May 5.

Purchase-only prices fell an average of 1.7 percent from the fourth quarter of 2007, Ofheo said. In Ofheo's ``all- transactions'' index, which includes appraisals for refinancings, prices fell 0.2 percent, according to the report.

Foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments increased, the Mortgage Bankers Association said in a March 6 report.

New foreclosures jumped to 0.83 percent of all home loans in the fourth quarter, the highest since the bankers group began tracking the statistic in 1979, from 0.54 percent a year earlier. Late payments rose to a 23-year high, the mortgage bankers said.

The S&P/Case-Shiller index of house prices showed that prices in 20 U.S. metropolitan areas fell 12.7 percent in February from a year earlier, the most on record.

Fannie and Freddie

Ofheo's Home Price Index measures changes of values for properties using selling prices and appraisals based on mortgage data from government-sponsored companies Fannie Mae, the largest U.S. mortgage buyer, and Freddie Mac, which is No. 2.

The two companies buy only loans that conform to their underwriting standards. That excludes so-called jumbo loans, for more than $729,750 in high-cost areas, and excludes most subprime mortgages, made to borrowers with bad or incomplete credit histories.

``Ofheo only tracks homes with conforming mortgages, therefore not capturing the volatile subprime and jumbo markets,'' Michelle Meyer, a Lehman Brothers Holdings Inc. economist in New York, wrote in a report today. ``On balance, the Ofheo report shows the weakness in the housing market, but does not, in our view, fully portray the dire state of the market.''

The Ofheo report doesn't give an average price, only the percentage change.

To contact the reporters on this story: Bob Ivry in New York at bivry@bloomberg.net; Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: May 22, 2008 16:03 EDT