Existing home sales soared in September, rising 9.4% to a seasonally adjusted annual rate of 5.57 million, a 9.2% increase from the September, 2008 pace, the National Association of Realtors reported Friday. It was the highest level of sales activity since July, 2007.

Sales of single-family homes also were up 9.4% to a seasonally adjusted annual rate of 4.89 million and are 7.7% ahead of September 2008. Existing condominium and co-op sales rose 9.7% to a pace of 680,000, 9.7% above a year ago.

Prices, however, continued falling, with the national median existing-home price down 8.5% from the same month last year to $174,900, with single-family down 8.1% from a year ago. The existing condo price fell further, down 11.7% from September 2008.

The Realtor group said the decline was in part due to downward pressure placed on the marketplace by distressed sales, which it said accounted for 29% of all transactions in the month.

Inventory of unsold homes, meantime, dropped 7.5% to 3.63 million, a 7.8-month supply, a decline of 15% from a year ago.

The sales increase was driven largely by first-time homebuyers racing to beat the deadline for the federal government's first-time homebuyer tax credit, which is set to expire Nov. 30. So far this year, the NAR said, more than 45% of sales have been to first-time buyers.

That prompted Lawrence Yun, the NAR's chief economist, to renew the organization's call for an extension and expansion of the tax credit. "We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery," Yun said.

Regionally, existing-home sales in the Northeast were up 4.4% to an annual level of 950,000, 11.8% higher than September 2008, with the median price down 7% to $234,700. The Midwest rose 9.6% to a pace of 1.25 million, up 7.8% from last September, with the median price down 1% to $147,600. The South increased 9% to a pace of 2.06 million, 10.8% ahead of September 2008, and the median price was down 7.6% to $153,500. The West jumped 13.0% to an annual rate of 1.3 million, 5.7 percent above a year ago, with the median price off 15% to $219,000.

Yun tempered the upbeat report with a warning. "We're getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy," said Yun. "Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history."

On a brighter note, Yun noted that the current inventory of unsold homes is the lowest it has been in 30 months. "If we could continue to absorb inventory at this pace, home prices would return to normal, modest appreciation patterns next year," he said.