U.S. home prices in the first quarter rose at the slowest pace in a decade, led by declines in Massachusetts and Michigan, as the U.S. housing slump entered its second year, a government report showed.

Prices for single-family houses rose an average 4.3 percent from a year earlier, the smallest gain since the 4.1 percent increase in the third quarter of 1997, the Office of Federal Housing Enterprise, known as Ofheo, said today in Washington. The report doesn't give an average price, only the percentage change.

The decline in home sales that began in 2006 is lasting longer than central bank officials had expected, according to the minutes of the May 9 Federal Open Market Committee meeting released yesterday in Washington. Richard Yamarone, Chief Economist of Argus Research in New York, said the next Ofheo price report could show a decline, which would be the first in more than 30 years.

"The only way inventories can be depleted is to have a sharp correction in prices," Yamarone said in an interview. "I suspect the Ofheo report will show a contraction either next quarter or the quarter after that."

The S&P/Case-Shiller Home Price Indices, a report limited to 20 U.S. cities, yesterday showed the first decline in almost 16 years. The value of a single-family home dropped 1.4 percent in the first quarter from the same period a year earlier as 13 of the cities posted declines, the report said.

The Ofheo report includes home prices and refinancing appraisals for homes — urban, suburban and rural — that Fannie Mae or Freddie Mac hold in their loan portfolios. While the sampling includes all U.S. regions, it includes only properties that have mortgages under $417,000 — the maximum for loans bought by the government-chartered companies.

Massachusetts and Michigan were the only two states in the Ofheo report to have a decline in prices during the first quarter from a year earlier. Massachusetts prices dipped 0.6 percent and Michigan prices fell 0.7 percent, according to the report.

UTAH PRICES SOAR

New Jersey prices rose 3.8 percent, lagging behind the national average. Connecticut prices gained 3.3 percent, New York grew 3 percent, Rhode Island increased 1.5 percent, and California was up 1.2 percent.

States with the fastest rising prices were Utah, at 17 percent, Idaho, at 12 percent, and Montana, up 11.68 percent. Wyoming was No. 4, at 11.67, the state of Washington was next, at 11.63 percent, New Mexico was up 11.2 percent and Oregon gained 11 percent.

During the first three months of 2007 prices rose 0.5 percent above the last quarter of 2006, the slowest quarterly growth since the 0.4 percent increase in the third quarter of 1996, according to the report. On that basis, it beat the 0.3 percent gain that was the median estimate of four economists surveyed by Bloomberg News.

The U.S. housing slowdown continues to "weigh heavily on economic activity," the minutes of the May 9 meeting of Federal Reserve policymakers said. The U.S. economy grew at a 0.6 percent annual pace last quarter, the slowest in more than four years and less than the government's prior estimate, the Commerce Department said today.

NO RATE-HIKE SOON

Fed officials voted unanimously this month to leave the benchmark U.S. lending rate at 5.25 percent for a seventh consecutive meeting. Futures contracts show that traders also expect no change at the June 27-28 gathering.

Sales of previously owned homes in the U.S. fell in April to the lowest level in almost four years, the National Association of Realtors said May 25. Purchases fell 2.6 percent to an annual rate of 5.99 million from 6.15 million in March, the trade group said. A measure of the supply of homes for sale rose to the highest since August 1992.

New-home sales, accounting for 15 percent of residential transactions, surged 16 percent to an annual pace of 981,000 in April from an 844,000 rate in March as the median price dropped 11 percent, the biggest decline in 37 years, the Commerce Department said in a May 24 report.

The average rate for a 30-year fixed mortgage this week is 6.42 percent, lower than the 6.67 percent in the year earlier period, Freddie Mac, the No. 2 mortgage buyer, said today.

The rate probably will average 6.2 percent this year, down from 6.4 percent in 2006, the McLean, Virginia-based company said in a May 8 forecast.