Home prices see biggest drop in 25 years

NEW YORK (CNNMoney.com) -- National home prices showed their biggest quarterly drop in 25 years during the third quarter of 2007, said a report Tuesday.

Freddie Mac's (Charts, Fortune 500) home price index fell 1.3 percent on an annualized basis in the quarter, according to its survey of home purchases and mortgage refinance appraisals.

"The number of home sales fell during the third quarter, and the inventory of existing single-family homes for sale rose to 10.5 months by October, the highest level since 1985," said Frank Nothaft, Freddie Mac's chief economist.

He said that higher mortgage costs and tightened lending standards from banks had added to the challenge of buying homes.

Geographically, the Pacific region fell the most at a 5.8 percent annualized rate of decline, said Amy Crews Cutts, Freddie Mac's Deputy Chief Economist, while homes in the West South Central saw strong gains of 4.9 percent.

"The decline in home values occurred broadly across the U.S. The [index] found prices falling in seven of nine regions and in 25 states during the third quarter," said Nothaft.

The rise in the Southwest was attributed to strength in the energy sector over the period.

Freddie Mac's index is constructed from actual sales prices and appraised values of homes whose mortgages are being refinanced.