Home prices in record 9% decline

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NEW YORK (CNNMoney.com) -- National home prices, driven lower by a flood of foreclosures, plummeted in the third quarter by a record 9% year-over-year, according to a report issued Tuesday.

The median price of a single-family home fell in four out of five states, the National Association of Realtors reported. The national median price was $200,500, down 2.9% from the second quarter of 2008.

A flood of foreclosures has driven home prices down. As many as 40% of all sales made during the three months that ended Sept. 30 were short sales pr properties repossessed by banks. These are eager sellers. The longer the banks hold the vacant homes, the more it costs them in maintenance, taxes and insurance.

"A very large proportion of distressed home sales are taking place at discounted prices compared to more normal conditions a year ago," said NAR President Charles McMillan, a Dallas real estate broker. "It's very challenging to understand proper valuation, given the differences between distressed sales and a larger share of traditional homes in sound condition."

Three California markets recorded the steepest year-over-year declines in median prices: Riverside-San Bernardino, east of Los Angeles, where the median price plunged 39.4% to $227,200; Sacramento, down 36.8% to $212,000; and San Diego, down 36% to $377,300.

The high volume of sales in California and other bubble-bust states may indicate a healthy trend, according to Lawrence Yun, NAR's chief economist.

"We have seen cases of multiple bidders on properties in California," he said. "That suggests that future price declines may be minimal."

But while California saw significant declines, fully 79% of all metro areas recorded price drops for the quarter, according to Mike Larson, a real estate analyst at Weiss Research.

"We're clearly seeing a broadening, as well as a deepening of the declines," Larson said. "That indicates we've moved past the time when price drops were fed by bursting of real estate bubbles to one in which the broad economic downturn, marked by job losses, is taking hold."

And it may get worse, according to real estate analyst Patrick Newport of Global Insight. Financial market turmoil and soaring unemployment rates worsened in October and were not captured in this report.

"It is too soon to tell, but we may be getting some ugly sales numbers over the next three months," he wrote in an email.

A handful of metro areas showed substantial gains, led by Elmira, N.Y., where prices rose a whopping 12.5%, compared with a year ago, to $105,000. In Decatur, Ill., prices were up 8.5% to $93,400, and in Bloomington, Ill., prices rose 8.1% to $168,400.

Larson said that one source of strength in these markets was commodities. Grain prices have soared, peaking at close to $8 a bushel in early summer, more than twice the average levels of the past several years. The stronger grain prices helped prop up the economies of some Midwestern cities.

Prices in oil patch areas also held up better than most: Tulsa, Okla., showed a 5.1% increase to $139,800; Amarillo, Texas, recorded a 4.2% jump to $128,300; and Houston experienced a 2.8% rebound to $150,200.

The lowest-priced housing market in the country was Saginaw, Mich., where the median price of a single-family home is a mere $65,800, down 22.5% year-over-year. Real estate there has been hit hard by turmoil in the automotive industry.

The highest-priced market was the San Jose metro area, where the median home price was still $650,000 despite having plunged 23.5% during the past 12 months

Regionally, single family home prices were the most stable in the South, where they fell just 3.7% to $174,200. They dropped 5.5% in the Midwest to $159,900 and 6.5% in the Northeast to $267,700. In the West, the median price fell 21.4% to $266,300.

Condo markets sank nationally, down 7.1% to $210,800 for the 57 metro area markets NAR surveyed. Dallas recorded the highest gain from a year earlier, at 11.1% to $149,900. The biggest loser was San Diego, where condo prices cratered 46% to $189,900.

Regionally, condo prices were unchanged the Northeast at a median of $259,000. They decline 4.8% in the Midwest to $189,400, 9.7% in the South to $165,200 and 17.8% in the West to $216,100.