Home prices continue to fall, according to a report by the Washington-based Federal Housing Finance Agency.

This year, home prices during the second quarter were 1.6% less than last year’s. The first quarter, on the other hand, saw a 3.2% decline in home prices. More foreclosed homes also join the ranks of those properties for sale.

Though prices are up by 0.9% vis-a-vis the first three months of the year, the increasing number of foreclosures is cutting into buyer confidence. Mortgage rates are also reaching its record low, further weakening demand.

In the second quarter of 2010, homes for sale averaged 3.89 million, according to a U.S. inventory by the National Association of Realtors. Number of properties seized by lenders is also on a record high at 269,962, says RealtyTrac Inc. Increasing foreclosures are contributing to the decreasing home prices.

Economist Zach Pandl of Nomura Securities International Inc., New York shares, “As long as foreclosures keep coming on the market, it’s unlikely we’ll see a strong rebound in housing prices.”

More and more properties are expected to be seized as RealtyTrac predicts that the number may reach one million.

Unemployment is also adding to the further weakening of the housing industry. In the second quarter, an average of 9.7% was unemployed – near the highest of 10% rate in the final three months of 2009, according to the Bureau of Labor Statistics. The higher the number of jobless people, the higher the foreclosure as less and less people are eligible for home loans plus more and more are unable to pay mortgages.

McLean, Virginia’s Freddie Mac revealed that, since 1971, mortgage rates for a 30-year fixed loan are at its lowest at 4.42% this month. For 2010 and 2011, rates may average 4.7%.

Since comparable records in 1999, sales of new home are slowest as they go down in July by 27% to a 3.83 million annual rate. Median home price in the U.S. is at $176,900 in the second quarter.