Oct. 7 (Bloomberg) -- California house prices may rise in 2010 for the first time in three years as first-time buyers and investors return to the market, the state Association of Realtors said.

The median price for detached, single-family homes in the most populous U.S. state likely will rise 3.3 percent to $280,000 next year, the California Association of Realtors said in its annual housing forecast, issued today. The number of sales will probably drop 2.3 percent to 527,500, following an estimated 23 percent increase this year.

“There’s this huge demand on the part of first-time buyers and investors,” Leslie Appleton-Young, chief economist for the Realtors group, said in an interview. “The demand for properties in fairly good condition exceeds the supply.”

House prices in California fell 38 percent in 2008 and have dropped about 22 percent this year as foreclosed homes have dominated the market, the Realtors group said. Next year likely will “mark the beginning of the ‘new normal’ for California’s housing market,” James Liptak, the association’s president, said today in a statement.

California single-family home prices fell 17 percent from a year earlier in August, the latest month for which figures are available, the group said last month. Sales increased 9 percent from a year earlier. Foreclosed homes accounted for 40 percent of existing-property transactions in California in August, according to research company MDA DataQuick.

‘Significant Contractions’

“You just have to look to the significant decline in prices, and you get a little bump up,” Appleton-Young said. “It’s coming off these significant contractions. A median of $280,000, which is the forecast for next year, is still pretty affordable.”

The California Association of Realtors a year ago projected that prices would decline only 6 percent to a median $358,000 this year. That’s about 32 percent above the group’s revised forecast for this year. The association projected a 13 percent increase in home sales, less than the estimated 23 percent rise this year.

“The prices went down a lot more sharply than we anticipated, and consequently the sales went up a lot more,” Appleton-Young said.

Almost three-quarters of homes now selling in California are priced at less than $500,000, while few mansions are trading, she said.

“You had a huge rebound in the lower-end properties selling and a reduction in the market share at the high end, and that really dragged the median down.”

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: October 7, 2009 14:01 EDT