Home prices down 9% from a year ago

— -- The rise in foreclosures continued to drive down the median price of homes across the country in the third quarter, according to a report released by the National Association of Realtors on Tuesday.

Economists expect the fourth quarter to be worse.

Between 35% and 40% of all transactions were either foreclosures or pre-foreclosure sales — called short sales — in the quarter, the report says, causing the national median price of a single-family home to drop to $200,500, 9% lower than the third quarter of 2007 and 11.9% off the peak of the housing boom, in the third quarter of 2005.

"Homes are selling because prices are plunging," said Patrick Newport, economist at Global Insight. "Prices are plunging because of distressed sales."

While existing home sales dropped from the third quarter of 2007 in the South and the Northeast by 1.4% and 1.6%, respectively, the number of sales jumped 13.1% in the West and 2.7% in the Midwest.

"It isn't a sign that it is a healthy market," Newport said. "It is just a sign that banks are foreclosing on homes and slashing prices."

Joel Naroff, of Naroff Economic Advisors, disagrees. "People look at it as being bad. I see it as being good. The foreclosures and short sales are getting prices to where they belong." Sales jumped the most in Nevada, up 76%; California, 58.4%; and Arizona, 49.4%. All were among the five states with the highest number of foreclosure filings in October, according to RealtyTrac.

The areas that saw the largest price declines were the areas hardest hit by high numbers of foreclosures: Riverside/San Bernardino/Ontario, Calif., down 39.4%; Sacramento/Arden-Arcade/Roseville, Calif., down 36.8%; and San Diego/Carlsbad/San Marcos, Calif., down 36%.

Some areas saw modest price gains, including Buffalo, up 3%, Tulsa, up 5.1%, and Wichita, up 5.5%. But prices dropped in the majority of the 152 metropolitan areas included in the survey. Also on Tuesday, a closely followed home-builder index recorded its lowest level of confidence in the industry since it was created in January 1985. The National Association of Home Builders/Wells Fargo housing market index, which peaked at 72 in mid-2005, was at 9 on Tuesday. The index reflects home builders' view of new home sales now and in the next six months.