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Pity the person who bought a house in Santa Barbara county, California, one year ago. Since then the value of their home has dropped almost $6,000 – per week, that is. The median house price there has dropped 34 per cent since March 2007, according to the California Association of Realtors.

Plunging prices are not confined to obvious bubble markets such as California. In the latest Standard & Poor’s/Case-Shiller house price index, the pain is deep and widespread. Las Vegas suffered the biggest fall – 23 per cent, year on year – of the 20 cities tracked. But 19 posted a drop. Charlotte, in North Carolina, eked out a 1.5 per cent increase. This, however, reflected timing: Charlotte’s market peaked last, in September. Exposed to financial services – Bank of America and Wachovia both call it home – Charlotte will not escape unscathed.

With US home prices down 13 per cent year on year compared with a 6 per cent drop in the early 1990s, some hope the worst is over. Such a view is premature. The Case-Shiller index is a rolling average, so February’s data include deals closed in December, where prices may have been agreed in November. Credit and macro-economic conditions have worsened since then.

Falling prices are also yet to have an impact on the overhang of 2.3m unsold homes. Merrill Lynch says a normal level would be about half that total. Landlords who hoped that fewer home sales would boost rents may also be disappointed: the rental vacancy rate jumped to 10 per cent in the first quarter.

Flow of funds data put the value of household real estate at the end of 2007 at $20,155bn. Roughly calculated, the Case-Shiller index’s 5 per cent drop since then equates to $1,000bn wiped out in the space of two months – almost 10 times the size of the federal tax rebate. Much of that will be saved rather than spent.

The housing market’s continuing slide will strengthen doves among Federal Reserve officials meeting on Wednesday. A rate cut might boost short-term sentiment. But America’s swathe of empty, devalued houses illustrates the deep-seated problems at the heart of the economy.

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