Spokane-area home sales have shown the first three straight months of year-over-year improvement since homebuyer tax credits expired more than a year ago, leaving Rob Higgins, of the Spokane Association of Realtors, optimistic that the protracted downturn in home sales here has bottomed out.

Despite recent higher numbers of sales, and a decrease in in the number of homes on the market, however, foreclosed and otherwise distressed properties continue to pressure prices downward, says Higgins, the association's executive vice president.

Higgins reports 1,129 single-family homes were sold through the association's Multiple Listing Service in the third quarter ended Sept. 30, an increase of 14.7 percent compared with 847 homes sold in the year-earlier quarter.

Sales in the first nine months of this year totaled 3,010 homes, which is 6.5 percent behind sales in the year-earlier period. That sales gap narrowed, however, from a lag of 20.2 percent in the first six months of 2011, compared with the first half of 2010, he says.

"If we can stay on trend, we could be headed back up," Higgins says.

The third-quarter comparison is significant, he says, because sales in the first two quarters last year were skewed by home-buyer tax incentives, making it difficult to compare market conditions in the first half of 2011 with the year-earlier period.

Single-family home sales in the first half of last year were boosted by federal income-tax credits of up to $8,000 for qualifying first-time homebuyers, and up to $6,500 for qualifying step-up buyers who bought homes of greater value than they had owned previously.

If sales continue to climb at a similar rate in the fourth quarter, the year-end total could come close to or surpass last year's total of 3,714 homes sold through the MLS, Higgins says.

In another positive sign, inventory, or the number of homes listed for sale, was at 2,922 units as of Sept. 30, down 13 percent from a year earlier, Higgins says.

Overall, there's plenty of room for improvement, however; total annual sales have declined every year since 2005, when sales peaked at 7,521 homes.

Despite the increase in home sales and the decrease in inventory, median sales prices continued to decline. The median sales price for homes sold in the first nine months of this year was $155,000, a drop of 6.5 percent compared with sales prices in the first three quarters of 2010. The annual median sales price peaked here at $185,000 in 2007, according to MLS reports.

The latest median value still represents an average annual increase of 4.5 percent during the last 25 years, Higgins says. That rate has been slowed by the number of distressed properties, which include foreclosed and short-sale properties with delinquent loans, he says.

"About 22 percent of homes sold in September were distressed properties," Higgins says. Although that's down from a peak of 28 percent in April, it's still higher than in September 2010 when 17.4 percent of home sales were distressed properties, he says.

In another area of concern likely related to depressed home prices, new home sales continue to lag this year. Higgins says 369 new homes sold though the MLS through September, down 11.7 compared with the first nine months of 2010.

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, says sales prices remain weak largely because of a significant number of foreclosed and preforeclosed properties working through the pipeline.

While it appears inventory is beginning to balance out, Crellin says that shadow inventory could weigh heavily on market prices for years to come.

"Shadow inventory includes properties that may have been taken back by lenders who aren't willing to put everything on the market all at once for fear of overwhelming the marketplace," he says.

The sales picture for single-family homes was similar in Kootenai County, where the number of single-family homes sold in the third quarter increased 2.6 percent compared with the year-earlier quarter, the September report of the Coeur d'Alene Association of Realtors says. The total number of units sold for the first nine months of 2011 decreased 3 percent compared with the year-earlier period, while the median sales price fell 9 percent to $147,195, the report says.

"Kootenai County suffered more in the recession than Spokane," Crellin says.

With the combination of declining home prices, continued low mortgage rates, and modest increases in income, affordability might be the silver lining in the market for people with good credit and dependable income, Crellin says.

Also, he says more people are paying cash for homes than he's seen historically.

Some cash buyers are almost retirement age and have sold some assets, but still want to own a home. Other cash buyers are bargain-hunting investors looking to rent out properties or improve them and sell them at a profit.

"Those folks who are willing to put cash down aren't the casual flippers we were seeing in the middle of the bubble," he says.

Crellin says the Center for Real Estate Research still is compiling third-quarter sales figures from throughout Washington state, and expects to complete an analysis of them next month.

He says he too is interested in comparing post-tax-incentive sales statewide.

"I think it's going to be telling about how the market is behaving," Crellin says.

Statewide, January-through-June sales this year fell by 11.3 percent compared with the year-earlier period, he says. The statewide median sales price in the first half of the year was $226,900, down 7.6 percent.