Sales of existing homes registered the highest level in 26 months in September as buyers rush to avail of the tax credit for first time homebuyers which is about to expire November 30 according to an trade association report released Friday.

The National Association of Realtors reported that sales sharply increased 9.4 percent to a seasonally adjusted annual rate of 5.57 million last month after falling for the first time in four months in August.

Year over year, sales of existing homes were up 9.2 percent in September and up 24 percent from their bottom in January.

"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Lawrence Yun, NAR chief economist.

Nationwide sales are up nearly 24 percent from their bottom in January, but are still down 23 percent from four years ago.

According to Yun, the market is still underperforming as home values continue to decline.

The median price of homes sold in September was $174,900, down 8.5 percent from a year earlier.

The price decline is attributed to the influx of distressed properties, which accounted for 29 percent of sales in September and include foreclosures and short sales.

"We're getting early indication 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," Yun said.

In order for prices to return to normal, Yun says that total housing inventory would need to drop at the 7.5 percent pace seen in September, which represents a 7.8-month supply, the lowest in almost three years.

Also, to help boost home prices and sales, lawmakers are considering extending the tax credit and expanding it to all but the wealthiest homebuyers.

The strongest market was the West, where sales jumped 13 percent to an annualized rate of 1.3 million. That was 5.7 percent higher year-over-year. The median price of homes sold during the month was down 15 percent from last year’s to $219,000.

Sales in the Midwest improved by 9.6 percent to a pace of 1.25 million, which was 7.8 percent above last year’s rate. Prices there have declined one percent since 2008 to a median of $147,600.

In the South, sales were up 9 percent from August and 10.8 percent from last September to a rate of 2.6 million. Prices have dropped 7.6 percent to $153,500 in the past 12 months.

The Northeast reported a modest improvement, with 4.4 percent increase from August to a rate of 950,000. That was 11.8 up from a year ago. The median price there was $234,700, down 7.6 percent from last year.