In the five-plus years since the housing bubble burst nationwide, home values have dropped precipitously, dragged down by record numbers of foreclosures.
In the hardest-hit areas of the country, prices have dropped 50 percent or more, and continue to decline, sales data show. Even in this region, with relatively fewer foreclosures, prices are down 15 percent since August 2007.
Remove sales of distressed properties from the mix, however, and the drop in home prices is much less precipitous, the data show.
In Philadelphia, for example, median prices for single-family houses fell 3.2 percent in May from the same month of 2010, according to CoreLogic, which provides real estate data to businesses and government.
Subtract lower-price bank repossessions and short sales, and the year-over-year city decline was just 1.2 percent, the data show.
Short sales are those in which the lender accepts a sale price that is lower than the balance of the seller's mortgage, usually as an alternative to foreclosure.
In some parts of the country, eliminating distressed sales turns price losses into gains. In the Washington, D.C., area, for example, CoreLogic says, a 1.5 percent decline became a 3.9 percent year-over-year increase.
Why factor in distressed sales at all? some in the housing industry have asked.
In a recent discussion of his company's quarterly results, Robert I. Toll, executive chairman of the Horsham-based luxury-home builder Toll Bros., said: "We believe that averaging distressed and non-distressed sales data provides a misleading picture to the public regarding home-price direction."
By contrast, Toll said in his statement, "we are experiencing flat to slightly increasing pricing in most markets."
CoreLogic's data bear out Toll's contention. Nationally, May median home prices were down 7.4 percent from the same month in 2010. When distressed sales are removed, the decline is 0.4 percent, just about flat.
"The historic measure we have is for the median price of existing homes, which includes all transactions (traditional and distressed)," said Walt Molony, a spokesman for the National Association of Realtors in Washington.
"Distressed homes only became an issue beginning in 2008, with a downward skew on the overall median, and it's not easy to report separately," he said.
As loan resets work their way through the market, distressed sales will once again become inconsequential within a few years, Molony said.
Sellers of what he calls "traditional" properties are generally not happy to be competing with foreclosures and short sales, said Ruth Feldman, of Weichert Realtors/McCarthy Associates in Mount Airy.
These days, Feldman said, distressed sales are sometimes the only comparisons available in "the immediate area -- sales can be few and far between in certain areas and price ranges, and appraisers like to go back only three months, if possible."
Excluding distressed transactions, which account for about one-third of all sales, would shut out a very large part of the current housing market, said Mark Zandi, chief economist at Moody's Analytics in West Chester.
Such properties compete with other houses on the market, Zandi said, "and as long as they account for such a large share of home sales, they will weigh on all house prices."
If there is something positive in all this, Molony said, it's that the percentage of distressed sales is the same today as it was a year ago.
Yanling Mayer, senior research economist at FNC Inc., said that because of the large volume of distressed sales, "it is not surprising that home prices in the non-distressed market segment have remained weak."
Mayer said abundant evidence showed that distressed properties often suffered from poor maintenance, theft, vandalism, and deteriorating neighborhood conditions.
"Because of these and other hidden costs, risk, and stigma associated with buying distressed properties -- not fundamental declines in home values -- buyers can often expect large discounts priced into distressed sales," Mayer said.
Zandi said it was "an encouraging sign" that nondistressed house prices were holding up so well.
"This suggests that once the distressed share begins to decline, house prices will rise, even if the share remains high."
