The Wall Street Journal

Demand for previously owned homes surged in September as buyers grabbed lower prices and a tax credit about to vanish.

Home resales increased by 9.4% to a 5.57 million annual rate from 5.09 million in August, the National Association of Realtors said Friday.

August sales fell 2.9%; the NAR originally reported August sales fell 2.7%, to 5.10 million.

Economists surveyed by Dow Jones Newswires expected a 5.5% gain in sales during September, to a rate of 5.38 million. The level of 5.57 million is the highest since 5.73 million during July 2007.

The NAR reported the median price for an existing home last month was $174,900, which is 8.5% below $191,200 in September 2008.

Despite joblessness in the U.S. and a reluctance by consumers to spend a lot of money, the housing market has been recovering this year. New-home sales are up 30% since bottoming in January, the latest data say; the higher demand has given builders enough confidence to increase construction modestly. Existing-home sales, year over year, were 9.2% higher last month than the level in September 2008, Friday’s data said,

Mortgage rates and prices are low. The average 30-year mortgage rate was 5.06% in September, down from 5.19% in August, Freddie Mac data showed.

An $8,000 tax credit for first-time home buyers has helped push up sales this year. But the government incentive expires next month. Afraid it won’t be extended, some buyers rushed to the market in September to use the subsidy before it ends. The housing industry is pressing for an extension.

“Today’s [sales] figure was very strong,” NAR economist Lawrence Yun said. “What we have going forward will heavily depend on the tax credit.”

Sales have gone up in five of the last six months. “The rising sales momentum needs to continue for a few additional quarters until we reach a point of self-sustaining recovery,” Yun said.

Inventories of previously owned homes dropped again, down by 7.5% at the end of September to 3.63 million available for sale. That represented a 7.8-month supply at the current sales pace, compared to 9.3 in August.

Regionally, sales in September compared to August rose 4.4% in the Northeast, 9.6% in the Midwest, 9.0% in the South, and 13.0% in the West.

Of the 5.57 million in overall U.S. sales, 29% were distressed, which includes foreclosures. That’s down from 31% in August and down from a range of 45% to 50% in months during late 2008 and early 2009.