House prices fell 0.4% month-over-month in March following February's revised 0.4% gain, and declined 1.7% quarter-over-quarter in Q1 compared to a previous 0.1% gain, the Office of Federal Housing Enterprise Oversight (OFHEO) reported Thursday. The quarterly fall was the largest decline on record.

The consensus had been looking for a 1.3% quarterly pullback in Q1.

"These substantial home price declines bring positive and negative news," said OFHEO Director James Lockhart. "For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets. To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news, as are continued low mortgage rates."

The purchase-only index is based on more than five million repeat sales transactions, while the all-transactions index, released quarterly, includes more than 34 million repeat transactions. Both indexes are based on data obtained from Fannie Mae and Freddie Mac for mortgages originated over the past 32 years.

By Erik Kevin Franco and edited by Nancy Girgis