Home sales in the Twin Cities metro area jumped in October as buyers snapped up bank-owned homes, but experts say those distressed sales are weighing down the area's home prices and discouraging people from putting their houses on the market.

In its monthly housing report, the Minneapolis Area Association of Realtors said October sales were up 32 percent from last year to 3,514. Home prices, however, fell 9.4 percent from a year ago as foreclosures and short sales depressed home values.

One of the most notable shifts last month was the decline in listings, with overall inventory levels falling to their lowest level since 2004. Potential sellers are reluctant to put their homes on the market either because they don't want to lose money by competing with lower-price homes or they owe more on their house than what it's worth.

"It's something of a fallacy to call this a buyer's market," said Brad Fisher, president of the Minneapolis Area Association of Realtors. "Good quality homes that are priced right are in short supply. Buyer demand exists, but we need more sellers in the game."

Sales have been steady in recent months with October marking the fourth consecutive month of annual sales increases. But the boost has also been due to an easy comparison with 2010, which was hurt by the expiration of the federal home buyer's tax credit. The incentive ended in April 2010 and the effect of that was felt in the following months.

Distressed sales also continue to dominate the market. Foreclosures and short sales represented more than 40 percent of all transactions last month. That was a slight increase from the previous month, and there's growing concern that foreclosure sales could rise in the short term.

Pace of foreclosures rising

On Thursday, RealtyTrac said that after several months of declines in foreclosure activity, lenders are now stepping up foreclosure proceedings in the wake of the robo-signing scandal, which caused lenders to reevaluate the way foreclosures are processed.

In Minnesota, which had the 18th-highest number of foreclosure filings nationwide last month, foreclosure filings increased 15 percent from September and remained constant compared with last year. Nationwide, foreclosure filings last month increased 7 percent from September but were down 31 percent from October 2010.

Those foreclosures are putting pressure on prices even though demand has been rising. Last month, foreclosure prices fell 10.5 percent to $102,000, while prices of traditional deals were down 11.5 percent to $190,000.

Traditional listings' price up

Herb Tousley, director of real estate programs at the University of St. Thomas, said that despite the annual declines, sale prices have been relatively stable this summer. Since August, overall house prices have remained flat at $155,000. The median price of traditional listings, which have fallen during much of the summer, increased from $186,000 to $189,600 from September to October.

While one month isn't a recovery, "it's a healthy sign," Tousley said.

But he warned that the number of distressed sales on the market will be elevated for the next several months as foreclosure filings increase.

Marshall Saunders, co-owner of Re/Max Results in the Twin Cities, is hopeful that elevated foreclosure rates will be offset by less-stringent mortgage underwriting guidelines. The market has plenty of pent-up demand, he said, and once lenders relax he expects stronger demand.

A CoreLogic report released Thursday that compares home prices of most metro areas across the country using repeat sales, shows that in September sale prices on single-family houses in Minnesota fell 8.3 percent, or twice the national average. Excluding distressed sales, prices were down 5.9 percent in Minnesota.

Jim Buchta • 612-673-7376