The volume of existing-home sales fell in 32 states during the third quarter compared to one quarter earlier, as an increasing volume of distressed home sales in some of the nation’s hardest-hit housing markets could not completely offset continuing weakness in the U.S. residential housing market, the National Association of Realtors reported Tuesday afternoon. Distressed sales, including foreclosures and short sales, accounted for 35 to 40 percent of transactions in the third quarter, the NAR said, helping pull down the national median existing single-family price to $200,500, nine percent lower than one year earlier. A year ago, when there were significantly fewer distressed transactions, the median price was $220,300, the realtor organization said. Four of five metropolitan areas nationwide — 120 of the 152 MSAs tracked by the group — posted price declines during the third quarter, as a result. That said, the effect of a rising number of distressed sales wasn’t enough to push overall sales volume over the hump outside of some of the hardest-hit housing markets, underscoring the real organic weakness that exists for housing in many markets — markets that haven’t been the center of the nation’s foreclosure crisis. “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. “It’s very challenging to understand proper valuation, given the differences between distressed sales and a larger share of traditional homes in sound condition.” While McMillian said NAR members understand how to solve the valuation problem, HousingWire‘s sources have suggested that the truth is that a strong bifurcation of home prices between distressed sales and regular retail listings is pressuring the more traditional housing market, as sellers attempt to hold the line on higher home prices. “There isn’t a realtor here in the Inland Empire that can justify a higher price for their client’s home, when banks are holding a fire sale next door,” said one realtor in California, who asked not to be named in this story. Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate of 5.04 million units in the third quarter, the NAR reported, up 2.6 percent from 4.91 million units in the second quarter. That’s 7.7 percent below the 5.46 million-unit pace in the third quarter of 2007. Lawrence Yun, NAR chief economist, said conditions continue to range widely. “A pattern of sharply higher sales in areas with large price declines is well established,” Yun said. “Affordability conditions have consistently been a major factor in driving sales.” The largest sales gain during the third quarter was in Arizona, up 28.3 percent from the second quarter, followed by California which rose 28.1 percent and Nevada, up 26.2 percent. All three states have been among the hardest hit by the housing correction, and distressed transactions drove a large chunk of the sales volume increases in each. Also not surprisingly, the steepest declines in single-family home prices in the third quarter were in three California markets hard-hit by foreclosure acvitity: the Riverside-San Bernardino-Ontario area, where the median price of $227,200 dropped 39.4 percent from a year ago, followed by Sacramento-Arden-Arcade-Roseville at $212,000, down 36.8 percent from the third quarter of 2007, and San Diego-Carlsbad-San Marcos, where the price dropped 36.0 percent to $377,300. “These areas have seen some of the strongest sales gains with some reports of multiple bidding,” Yun said. But those gains have been fueled by foreclosure activity moreso than a real recovery of the housing market, an important point to keep in mind: without distressed sales, those sales gains would be losses. Regionally, distressed sales helped existing-home sales in the West rise 13.1 percent in the third quarter to an annual rate of 1.15 million, 12.4 percent above a year ago — the only region to post a yearly gain in home sales volume. The Midwest region saw sales rise 2.7 percent during Q3, the NAR said, but sales remained below year-ago levels. Both the South and Northeast regions of the U.S., saw sales volume fall, 1.4 percent and 1.6 percent quarter-over-quarter, respectively. For more information visit http://www.realtor.org. Write to Paul Jackson at paul.jackson@housingwire.com.