The California housing market is finally regaining some liquidity as banks drop their unrealistic expectations and home prices fall.

Home sales in California surged 13.6 percent in August as a flood of foreclosures drove down prices.

The figures released Thursday by MDA DataQuick showed 37,988 new and preowned homes were sold statewide last month, up 13.6 percent from August 2007 but down 3.8 percent from July.

The firm said 46.9 percent of all homes sold last month were foreclosed properties.

That helped send the statewide median home price plunging 35.3 percent to $301,000 during the year ended in August.

A lot of banks were holding onto foreclosed properties because they didn't want to have to account for the loss by selling the house. As long as they held the property, they could imagine that it was worth the full value of the foreclosed mortgage. That made the banks' holdings appear larger than they really were.

Banks have apparently realized that these houses were never going to regain their past value and decided that they were tired of losing money on them each month, so they're starting to unload the properties at market rates. That will put downward price pressure on individual homeowners, but aspiring homeowners will come out as big winners as prices fall.

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