Home prices fall 9.5% from '07, but buyers returning

— -- Home prices in August were a record 9.5% lower than a year earlier, but the lower prices lured more buyers, shrinking the backlog of unsold homes and raising hopes that the housing market might be close to turning the corner.

The median price nationwide was $203,100 vs. $224,400 a year ago, the National Association of Realtors said. The percentage drop was steepest in the West at 24%. Prices dipped 3.4% in the South, 5.6% in the Midwest and 3.8% in the Northeast.

"We're back to a level of affordability we haven't seen in three years," says Joel Naroff, president of Naroff Economic Advisors. "We've wiped out a good portion of the (housing) bubble."

The price plunge largely reflects fallout from the subprime mortgage crisis, with nearly 40% of homes on the market in foreclosure or sold for less than the mortgage value, the Realtors group says.

The good news: Fire sale prices are attracting buyers, especially in the West and Southeast. Sales nearly doubled in California markets such as San Diego, Sacramento and Riverside, as well as in Las Vegas and Fort Myers, Fla. That helped slash the number of unsold homes at the end of August by 7% to 4.3 million, or a 10.4-month supply, down from 10.9 months in July. That's still much higher than a typical six-month supply.

"At least it's moving in the right direction," says Lawrence Yun, chief economist of the NAR, adding he expects the trend to continue the rest of the year. "The only way to get price stabilization is to get the inventory down."

Another sign the market may be bottoming, Naroff says, is that home sales in August fell only 2.2% from July to a seasonally adjusted annual rate of 4.9 million. Sales the past 10 months generally have been stable, he says.

Yet, only a limited number of buyers are taking advantage of the moderating prices because of tight lending criteria and higher interest rates, especially from Fannie Mae and Freddie Mac. The government takeover of the mortgage finance giants should ease credit standards and attract more buyers, Yun says.