A rising glut of foreclosed property is pressuring key local housing markets, pushing the median existing single family home price down 7.6 percent to $206,500 from $223,500 in the second quarter of 2007, the National Association of Realtors said Thursday. OK, technically, that's not what the NAR really said -- the realtor-led group instead suggested that home buyers were "responding" to lower metropolitan-area prices, focusing on the thirteen states that saw transaction volumes rise during the quarter (and ignoring the 37 states that saw volumes remain flat or drop). Nonetheless, the fact that foreclosures are pressuring prices is pretty evident in the group's data: only 35 out of 150 MSAs tracked by the NAR posted annual gains between Q2 2007 and Q2 2008. The NAR, not surprisingly given the group's agenda, suggested that the widespread price declines were being "distorted" by such a high number of REO properties on the market, and said that a surge in foreclosures had pushed prices below where they otherwise would be. "In many areas with large concentrations of foreclosure sales, homes are being purchased below replacement cost values," Gaylord said. "Many buyers with long-term expectations are getting exceptional value in the current market. Once the inventory is drawn down, price pressure will return because the costs of construction are rising -- today's buyers are very well positioned to build wealth over time." What NAR didn't consider, of course, is that institutional sellers of REO -- while certainly more aggressive that their retail counterparts in discounting -- still aren't seeing inventory move all that much, despite the lower prices. Inventory grows as sales post decade-low pace An earlier report Thursday from real estate data firm RealtyTrac noted that REO inventory has increased 184 percent year-over-year; the take-away is that while distressed asset sales are bringing down prices overall, they may not be quite the "distortion" the NAR wants to believe. "It's getting worse," Rick Sharga, RealtyTrac's executive vice president for marketing, told Bloomberg News. "The number of properties that have been foreclosed on by the banks and still haven't sold is the highest we've ever seen." Nonetheless, some inventory is beginning to move, even if inventory growth is swamping any sales gains at this point. "The biggest home-sales gains over the previous quarter have been in some of the markets with the steepest and fastest price drops," NAR's chief economist Lawrence Yun said. Compared with the first quarter, existing-home sales increased 25.8 percent in California, 25.0 percent in Nevada, 20.5 percent in Arizona and 10.1 percent in Florida. "Buyers in these areas are responding to deeply discounted home prices," he said. Nationally, however, existing-home sales were at a seasonally-adjusted annual rate of 4.91 million units in the second quarter -- a 10-year low, down 0.8 percent from 4.95 million units in the first quarter, and off 16.3 percent from a 5.87 million-unit pace in the second quarter of 2007. Yun, as he has throughout the mess, continued to suggest that price declines were near finished; in contrast, most economic experts suggest that prior real estate-led corrections have taken 4 to 5 years to reach the bottom of pricing slides. "Prices having fallen sharply and quickly in very distressed markets, but most or all of the price declines may have already occurred in these areas since buyers have now returned to those markets," he said. Our opinion: some buyers have decided to buy some properties in some markets, limiting their purchases to distressed asset buys from institutional sellers that have discounted heavily. Retail sellers holding out hope for higher prices in those areas will likely be holding out for years to come -- suggesting that price declines are complete in these areas on such a basis is pure folly, and also contradicts every other real-estate downturn we've experienced as a nation. For more information, visit http://www.realtor.org.