The National Association of Realtors reported Tuesday that there is another record drop in home prices. Home prices fell 9% year over year for the third quarter of 2008. The drop was attributed to the rising foreclosures.

Included in the report, was the median price of a single-family home where drops were seen in four out of five states. The national median price plunged to $200,500 in the third quarter. A 2.9% drop from the second quarter of 2008.

For the third quarter, a glut of foreclosures has driven home prices down. As many as 40% of all sales made were short sales of properties repossessed by banks. These are highly motivated sales as banks wants to dispose of the properties at the soonest time possible. The longer the banks keep the vacant homes, the more costly the homes become in maintenance, taxes and insurance expense.

"A very large proportion of distressed home sales are taking place at discounted prices compared to more normal conditions a year ago," said NAR President Charles McMillan. "It's very challenging to understand proper valuation, given the differences between distressed sales and a larger share of traditional homes in sound condition."

Three California markets recorded the sharpest year-over-year declines in median prices: Riverside-San Bernardino, east of Los Angeles, where the median price dropped 39.4% to $227,200; Sacramento, down 36.8% to $212,000; and San Diego, fell 36% to $377,300.

The high volume of sales in California and other bubble-bust states may indicate a healthy trend, according to Lawrence Yun, NAR's chief economist.