Washington-Sales of existing homes climbed 10 percent in September, with a drop in prices helping transactions increase for a second straight month, according to a report released Monday.

The National Association of Realtors said sales rose 10 percent to a seasonally adjusted annual rate of 4.53 million in August.

Economists polled by Market Watch expected a similar gain, to 4.39 million.

Nonetheless, sales are 19 percent below the 5.6 million unit pace in September 2009, when first time buyers were ramping up in advance of the initial deadline for the tax credit last November.

And prices of existing homes slipped 2.4 percent to a median price of $171,700.  Distressed sales accounted for 35 percent of all sales, compared to 34 percent in August and 29 percent in September 2009.

“A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium.  But the overall direction should be a gradual rising trend in home sales, with buyers responding to historically low mortgage interest rates and very favorable affordability conditions.” said Lawrence Yun, chief economist at the National Association of Realtors.

Steven Ricchiuto chief economist at Mizuho Securities USA, said in a note to clients that the home price drop may have spurred activity.

“Home price declines of this size and the rebound in sales show that the key to a better housing markets is lower prices, not lower rates.” he said.

By Steven Goldstein,  Market Watch