Washington - US home prices fell 3.1 per cent in the first quarter of 2008 from a year earlier, the sharpest drop recorded in the government's 17-year-old index, signalling the US housing and mortgage crisis is far from over.

The seasonally-adjusted purchase-only index fell 1.7 per cent from the fourth quarter - also the largest drop on record - as prices fell in 43 of 50 states, the Office of Federal Housing Enterprise Oversight (OFHEO) said.

"For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets," OHHEO Director James B Lockhart said in a statement.

But Lockhart said the declines should be seen as an opportunity for prospective buyers who had been unable to afford a home in the past.

Hardest hit were the states of California, Florida and Nevada, where prices dropped more than 8 per cent on the year.

The housing market crash, which began last year after a decade of rising prices, has fuelled a record number of home foreclosures in the United States, as homeowners who could no longer afford their mortgages were unable to sell their holdings for a profit.

The foreclosures have sparked massive writedowns of mortgage- related assets at financial institutions, sparking a wider economic downturn in the United States. (dpa)