Home prices down 7.6%

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NEW YORK (CNNMoney.com) -- Real estate prices continued to post steep year-over-year declines during the three months ended June 30, according to a new report from the National Association of Realtors (NAR).

Nationwide, the median existing single family home price plunged 7.6% to $206,500 in the second quarter, down from $223,500 in the same period of 2007. The median price represents the point at which half of all homes sold for more and half sold for less.

A record number of foreclosures helped drive down prices, according to NAR. In fact, foreclosures and short sales accounted for about one third of all existing homes sales.

"Banks price homes to sell," said Patrick Newport, real estate economist with Global Insight, a forecasting firm. "When demand for homes drops, ordinary sellers will take their homes off the market, let them sit or reduce their prices in small increments. But banks will slash prices to where the homes will sell quickly."

Poor economic conditions are also hurting the housing market, according to Nicholas Retsinas, Director of Harvard University's Joint Center for Housing Studies, and may continue to take a toll.

During the boom, many housing markets thrived despite tough economies. At the height of the frenzy in the Spring of 2005, Stockton, Calif. saw home prices climb by double-digits, even though the unemployment rate there hit 9.4%.

"Now we're getting into a time when the real economy is starting to affect housing markets more," said Retsinas. "It's a little bit of a contest now. Will lower prices stimulate home sales, or will the slowing economy slow down sales."

Sun Belt metro areas led with price declines. These areas ran up fabulous gains during the mid-2000s boom, but are experiencing even more severe declines during the bust.

In Sacramento, Calif. prices plunged 35.6% year-over-year to $$229,500. Cape Coral, Fla. saw a decline of 33.1%, while prices in Riverside, Calif. dropped 32.7%, and Los Angeles prices are down 29.6%. Las Vegas prices fell 23.6% and Phoenix was down 22.5% for the quarter.

More bargain hunting buyers are coming into the market, according to the Realtors association. "The biggest home-sales gains over the previous quarter have been in some of the markets with the steepest and fastest price drops," said Lawrence Yun, NAR's chief economist. "Buyers in these areas are responding to deeply discounted home prices."

The biggest regional home price declines occurred in the West, where the median home price declined 17.4% to $290,500.

At the same time, sales in that part of the country increased. Existing-home sales were up 25.8% in California, 25% in Nevada, 20.5% in Arizona.

Prices in the South, at $177,000, were almost flat, down just 0.9%, while Florida sales saw an uptick of 10.1% in the quarter.

The Northeast median home sold for $269,000, down 9.6%, and prices in the Midwest were down 4.1% to $161,500.

Among metro areas, Yakima, Wash. posted the largest price increase, up 8.9% year-over-year to $162,300. Binghamton, N.Y. was second with a price jump of 8.7% to $120,900.

The most expensive metro area in the nation is San Jose, where a median priced home cost $755,000, off 12.7% from 12 months ago. The second most expensive area is San Francisco, where homes sold for a median of $684,900, down 19.1%. Honolulu was third, with a median price of $636,000, down 4.4%.

Youngstown, Ohio is the nation's lowest priced major market with a median price of just $71,700, down 6.5% from 12 months ago. Elmira, N.Y. is the second-most affordable locale, with a median price of $76,400, which was up 4.4% year-over-year, followed by Saginaw, Mich., which saw prices decline by 7.6% to $80,300.

Condo prices fell much less than single family homes, down just 3% year-over-year to $220,000 from $226,900. A couple of cities actually recorded double-digit condo price gains, led by Syracuse, N.Y., up 17.8% to $144,900, and New Orleans, up 15.9% to $192,100. Houston condo prices rose 9.9% to $141,100.

Still, Global Insight's Newport does not expect home prices to rebound anytime soon.

"Loan officers are reporting that they are still tightening underwriting standards," he said. "We expect that sales volume, which has leveled off some, will drop another 10% over the next few months over this credit squeeze."

Reduced demand for housing, combined with high home inventories and so many bank-owned properties on the market, are all factors likely to depress home prices for the foreseeable future.