By Kathleen M. Howley July 22 (Bloomberg) -- Home prices fell 5.6 percent in May from a year earlier as job losses and record foreclosures deterred buyers during the spring selling season when the bulk of U.S. real estate sales typically occur. The average price rose 0.9 percent from April, the Federal Housing Finance Agency in Washington said today. Prices were forecast to drop 0.2 percent, according to the median estimate of 16 economists in a Bloomberg survey. The three-year housing slump slashed U.S. home prices 33 percent since the July 2006 peak, according to S&P/Case-Shiller index. The highest unemployment since 1983 and the biggest foreclosure rate on record are thwarting government efforts to revive real estate demand. “The distress in the housing market was not caused by unemployment, but now we are seeing a wave of delinquencies and foreclosures by people who, if they had kept their jobs, would be unlikely to default,” said Thomas Lawler, a former Fannie Mae economist who’s an independent consultant in Leesburg, Virginia. The unemployment rate rose to 9.5 percent in June, the highest since 1983, bringing the total number of lost jobs to about 6.5 million since the recession started in December 2007, the Labor Department said. Home prices in 20 major U.S. metropolitan areas dropped 18.1 percent in April from a year earlier, according to the S&P/Case-Shiller index. Federal Efforts The Federal Reserve is trying to keep rates low and spark a housing recovery by purchasing as much as $1.25 trillion in mortgage-backed securities to free up funding for home loans. Home-loan rates fell to a record low twice in April, helped by the Fed’s program. Rates started climbing in May along with Treasury yields on investor concern that a greater supply of debt being sold to fund government spending will fuel inflation. In June the average 30-year rate reached a 2009 high of 5.59 percent, according to Freddie Mac. Last week the rate was 5.14 percent, down from 5.2 percent a week earlier, according to the McLean, Virginia-based mortgage buyer. President Barack Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes. The government is offering incentives to servicers, the companies that administer loans, to modify terms for delinquent borrowers or refinance mortgages that exceed the value of homes. Late Payments Those efforts may not be able to keep up with the number of Americans falling behind on loan payments. The U.S. delinquency rate rose to a seasonally adjusted 9.12 percent in the first quarter and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said in a May 28 report. Both figures were the highest in records going back to 1972. One in every eight Americans is now late on a home-loan payment or already in foreclosure, according to Jay Brinkmann, chief economist for the Washington-based bankers’ group. U.S. foreclosure filings -- notices of default, auction or bank seizure -- rose to a record in 2009’s first half, according to RealtyTrac Inc., an Irvine, California-based seller of real estate data. More than 1.5 million properties, one in every 84 U.S. households, received a foreclosure filing, RealtyTrac said in a July 16 report. That was a 15 percent increase from a year earlier. To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

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