UPDATE:FHFA: US Home Prices Fell Record 3.4% In 4Q

U.S. home prices fell a record 3.4% on a seasonally-adjusted basis during the fourth quarter of 2008, according to a government index released Tuesday.

The drop surpassed the 2.0% decline reported for the third quarter and was the largest decrease in the index's 18-year history, the Federal Housing Finance Agency said.

However, home prices rose by a seasonally-adjusted 0.1% in December, after a downward adjustment for November, possibly indicating the first sign of a turnaround.

The quarterly data show "weak conditions virtually across the entire U.S.," said Federal Housing Finance Agency senior economist Andrew Leventis.

However, he noted that the price declines would improve affordability: "For people on the sidelines, these data are good news."

Home prices plunged most sharply in the bubble states of California, Arizona, Nevada, Florida and Georgia as well as in the Upper Midwest during the fourth quarter. All told, 22 states saw price declines of more than 5%, while eight states saw prices slide by more than 10%.

The index includes sales prices of home purchases only, not appraisals for refinancings. Those data are reflected in FHFA's broader "all-transactions" home price index, which posted a more modest 0.2% drop in the fourth quarter of last year.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; [e-mail]