Oct. 23 (Bloomberg) -- U.S. home prices tumbled the most in at least 17 years in August as a record jump in foreclosures reduced property values and a global credit crisis weakened the economy, according to separate reports today.

Home prices dropped 5.9 percent from a year earlier, the biggest decline since 1991, when the Federal Housing Finance Agency data starts. Foreclosure filings increased 71 percent to the highest on record in the third quarter from a year earlier, according to Irvine, California-based RealtyTrac, a seller of foreclosure data.

The surge in home foreclosures is dragging down real estate prices in neighborhoods across the U.S. as houses are sold at foreclosure auctions. A recession that began in the third quarter is deepening the housing slump and adding to mortgage defaults as companies shed jobs, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association.

``The people living paycheck to paycheck are at risk if they lose their jobs,'' said Rick Sharga, executive vice president for marketing at RealtyTrac, said in an interview. ``It will cause more people to lose their homes.''

Stigma on the Block

Every foreclosure cuts the value of all surrounding homes by a total of about $220,000 as it stigmatizes the block and sells at a discounted price, according to the Federal Deposit Insurance Corp. At the end of June, U.S. banks held $9.9 billion of foreclosed properties, up from $8.5 billion three months earlier, according to an FDIC report. Every three months, another 250,000 homes enter foreclosure, the report said.

A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most in records began in January 2005, according to the RealtyTrac study.

A prior measure of August home prices, issued by the National Association of Realtors in Chicago on Sept. 24, showed the U.S. median sale price plummeted 9.5 percent in August to $203,100 from $224,400 a year earlier, the biggest drop on record.

The Realtors' study included all homes sold, regardless of price, while the federal study excluded properties purchased with mortgages higher than the so-called conforming loan limit. For most parts of the U.S. that maximum is $417,000, though Congress voted in February to temporarily raise the cap to $729,750 in some high-cost markets.

The volume of new mortgages used to purchase homes will drop to $911 billion this year from $1.14 trillion in 2007, the Washington-based Mortgage Bankers Association said in an Oct. 21 forecast. The annual volume probably won't rise above $1 trillion until 2010, the bankers group said.

The Federal Housing Finance Agency was created three months ago from the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board. The agency in September seized Fannie Mae and Freddie Mac, the world's two largest mortgage buyers, after a surge of foreclosures threatened to topple them.

To contact the reporters on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net; Dan Levy in San Francisco at dlevy13@bloomberg.net

Last Updated: October 23, 2008 11:19 EDT