Pending home sales in the Twin Cities rose slightly during January, but sale prices got pounded, according to the Minneapolis Area Association of Realtors.

Foreclosures and short sales flooded the market during the month, accounting for more than half of all homes sold and driving down prices. Throughout the metro area the median price of home sales fell to $140,000, nearly 11 percent lower than a year ago and the lowest figure since the association began tracking it in January 2001.

"Demand hasn't shown any material strengthening to date, so this is a recipe for residual weakness in home prices," said Keith Hembre, chief economist at Nuveen Asset Management in Minneapolis.

The decline in prices was accompanied by a welcome increase in the number of pending sales, which rose 3.7 percent in the Twin Cities metro area -- the first month-to-month gain since the federal government's tax credit of up to $8,000 for new home buyers expired last spring. The 2,838 pending sales during the month were the strongest January since 2007.

Agents are hopeful that the increase bodes well for the spring market, which typically starts in February or March and is the strongest selling season of the year.

"The economy remains the elephant in the room, and housing is not immune to market dynamics," said Cari Linn, president-elect of the Minneapolis Area Association of Realtors. "Nevertheless, we're encouraged by the sales bump in January."

Still, Hembre said that there appears to be little relief for prices over the next year, or possibly into 2011, as foreclosures and short sales continue to flood the market.

Foreclosure sales last year were the second-highest on record and pre-foreclosure notices, an indication of upcoming sheriff's sales, were at near-record levels, as well.

There are also indications that lenders are delaying disposition of houses with mortgages that have gone into default, which could only prolong the crisis.

Aaron Dickinson, a sales agent for Edina Realty who closely tracks foreclosure data, said that lenders are waiting more than a year in some cases before starting foreclosure proceedings against homeowners who have fallen into default.

"It's sick how long some of this stuff takes to get through the system," he said. "So we're talking several years of foreclosures and short sales."

A tale of two markets

In January sales were goosed by strong sales of foreclosures and short sales, which represented 55 percent of all closed sales during the month. Throughout the crisis those distressed sales have generally represented anywhere from 30 to 40 percent of all sales, but have spiked from time to time. They peaked at almost 60 percent of all closed sales in February of 2009 and are expected to continue at elevated levels.

Though foreclosure sales have been putting steady downward pressure on the broader market, prices on traditional home sales haven't declined nearly as much. During January the median sale price of traditional listings actually rose almost 2 percent, to $201,500. Sale prices on traditional listings have benefited from the infusion of distress sales, which are favored by investors and bargain shoppers, but overlooked by buyers who don't want the paperwork hassles of dealing with a lender, or the headaches of a fixer-upper.

Overall inventory levels remain elevated. Last month houses sat on the market an average of 146 days, a 9.4 percent increase over last year, and they paid on average only 87.9 percent of the original list price -- the lowest number on record.

Brad Fisher, current president of the Realtors' association, said that buyers across the board are looking for deals: "We're still seeing consumers heavily focused on value."

Jim Buchta • 612-673-7376