NEW YORK - A recent decline of U.S. home sales is swelling the supply of houses and may push prices down, adding to losses from an earlier three-year slide, said rating agency Standard & Poor’s in a statement Friday.

“While home prices have been trending up since spring 2009, existing, new and pending home sales are waning, which suggests that lower prices are on the horizon,” said the statement.

Market analysts and policy-makers at the Federal Reserve are closely watching the battered housing sector and the weak jobs market to gauge whether the U.S. economy can go on growing and to determine when the central bank may start raising interest rates.

Recent data showed U.S. existing home sales dropped by a monthly record of 16.7 per cent in December, while new home sales fell by 7.6 per cent, S&P noted.

U.S. home prices increased in June 2009 in seasonally adjusted terms for the first time in nearly three years and prices continued rising through November, S&P said.

But in non-seasonally adjusted terms, the S&P composite index of home prices in 20 metropolitan areas slipped 0.2 per cent in November.

The recent fall in home sales is boosting the number of existing homes on the market, which grew to a 7.2 months supply in December from 6.5 months in November, S&P said.

In coming months, “an expanding default and foreclosure pipeline of 2005-2007 vintage mortgage loans may push the ‘shadow’ inventory of distressed U.S. housing even higher,” which could impede the market’s stability, S&P added.