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NEW YORK (CNNMoney.com) -- On Wednesday there was some good news for California, which has been one of the hardest hit states in the housing crisis, when a local realtor group said that sales there jumped 18% in May compared to May 2007.

But the hard times are far from over: Prices took a beating, plummeting 35% during the same period, according to a report from the California Association of Realtors (CAR).

"Home sales exceeded 400,000 (on an annualized, adjusted rate) last month for the first time since early 2007," said CAR President William E. Brown. "While this is a welcome sign for the market, it was due in part to the large share of distressed homes for sale in many parts of the state."

May was the second straight month of increased sales volume in California, but that followed a disastrous string of 30 consecutive months when sales saw a steady decline.

"What you're seeing in some of the hardest hit markets, like California and Florida, is that Americans still love bargains," said Mick Larson, a real estate analyst for Weiss Research. "And when the price is right people will buy."

Not everyone is convinced that the time is right. Jonas Lee, a principle of New York-based Redbrick Partners, which buys distressed properties all over the country, says he's watching California closely, but isn't ready to jump into the fray just yet.

"We've been monitoring sellers of bulk REO (bank repossessed) properties and their prices have gotten more realistic," he said. "But we're concerned whether this is the end of the decline. We don't think so. And the decline curve may be bathtub shaped - it goes down and stays down for a long time."

The state-wide median price for a home sold during the month was $384,840, down from $594,530 last May. That severe drop probably reflects the fact that there are so many distressed sales and low-priced homes on the market, according to CAR.

"[It's the result of] a large number of short sales and foreclosures in the market," said CAR Vice President and Chief Economist Leslie Appleton-Young.

The Santa Barbara County area has been particularly hard-hit by falling prices; the median home sold there in May for $400,000, 24% below April prices, and 55% below May 2007.

Monterey County, down 49% since last May, and the Riverside-San Bernardino area, off 35%, also suffered steep losses.

Los Angeles prices fell 21% from a year ago, while San Francisco prices dropped 20%, and San Diego was down 27%.

The increased sales volume helped reduce the inventory of homes on the market to 8.4 months at the present rate of sales. That's down from the 10.7 months of inventory that was on the market a year ago.

Additionally, far fewer new homes are being built.

"Builders have aggressively slashed housing starts," said Weiss. "That is working inventory levels down."

Most industry analysts agree that the big inventory overhang will have to be whittled down substantially more before home prices can begin to recover.

California experienced some of the biggest run-up in prices during the bubble years, and the state has been hit hard in the slump.

Foreclosures have become a major problem. California recorded 72,000 foreclosure filings in May, the most of any state. Its rate of one filing for every 183 households trailed only Nevada.