A US government home-price index has posted the sharpest decline in its 17-year history – and analysts say things won’t get better until at least 2009.

Home prices fell 3.1% in the first quarter compared with last year, according to The Office of Federal Housing Enterprise Oversight. This from AP:

Declines in the government index, which focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year, show the depth of the housing market’s troubles.

Prices fell in 43 states, with California and Nevada showing the biggest declines. Home prices dropped by more than 8 percent in those states. The government index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.

Adam York, an economic analyst with Wachovia Corp., said Thursday’s data was unsurprising. “It was pretty widely expected that we would see declines this quarter and for some time to come,” he said.

“Look at a nationwide map of foreclosures, and you just might be looking at a hollowed-out future of exurban America,” says Dave Gonigam in The Daily Reckoning.

“The fact is that ever-rising energy costs will alter American driving and dietary habits with no government intervention at all. $7 gasoline (or $12, now that Robert Hirsch of Hirsch Report fame has repeated Charlie Maxwell’s $12 forecast on CNBC) will make the 40-mile one-way commute unsustainable.

“The map tells one part of the story that’s undoubtedly true: there’s a whole lot of fairly new housing stock out there, 40 or 50 miles from major cities, that’s being steadily abandoned… and may never be occupied again.”

“Three things about the decade-long inflation in real estate prices now imploding on both sides of the Atlantic continue to amaze us here,” says Adrian Ash in The Daily Reckoning UK.

“First, the sheer volume of foreclosures sweeping the former hot spots of America. Second, the size of house price ‘discounts’ about to hit the United Kingdom. And third, how-in-the-hell anyone ever thought subprime mortgages sounded like a good idea.”