June 25 (Bloomberg) -- The median price of an existing home in California fell 35 percent in May from the same period a year ago, the California Association of Realtors said.

Home sales rose 18 percent and exceeded an annualized, seasonally adjusted rate of 400,000 last month for the first time since early 2007, the group said in a news release. The increase came because of more ``distressed sales,'' the Los Angeles-based group said.

California is among the states hardest hit by the biggest drop in U.S. home sales in 26 years. One in every 183 households in the state was in some stage of foreclosure in May, more than double the national average, according to Irvine, California-based RealtyTrac Inc. Foreclosures in California drive down prices, lower prices reduce home equity and lower home equity results in more foreclosures, said Ryan Ratcliff, an economist with the UCLA Anderson Forecast in Los Angeles.

``The increase in sales means prices have come down to a point where buyers are seeing they can get good deals,'' Ratcliff said. ``So this is a very dim flicker of a light at the end of the tunnel.''

About 38 percent of California home sales are of houses that were repossessed by lenders due to nonpayment of mortgages, according to DataQuick Information Systems Inc., a real estate information provider in La Jolla, California.

Hardest Hit

The hardest hit area for foreclosure sales is San Joaquin County, the area around Stockton, where almost 70 percent of sales are foreclosures, DataQuick said.

``Typical Californians should not be thinking that the value of their home declined by 35 percent,'' said Edward Leamer, director of the Anderson Forecast. ``That number is influenced by the number of foreclosure sales.''

The median price of a California home in May was $384,840 compared with $594,530 a year ago, the realtors said. The May 2008 price is a 4.7 percent decline from April's median of $403,870, the report said.

``We expect the market to continue to experience large year- to-year adjustments through the summer, even if the median price holds steady over the next few months,'' Leslie Appleton-Young, the realtor group's vice president and chief economist, said in the report.

It would take 8.4 months to sell the state's unsold inventory, compared with 10.7 months a year ago, the report said.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: June 25, 2008 15:59 EDT