Sales of existing homes increased in February after a sharp drop in January according to an industry report released Monday.

The National Association of Realtors report said that existing home sales increased 5.1 percent in February to a seasonally adjusted annual rate of 4.72 million units from a rate of 4.49 million in January.

Existing-home sales includes single-family, townhomes, condominiums and co-ops.

According to NAR, Even so, sales activity remains behind last year’s level by nearly 4.6 percent as more layoffs are expected and buyers waiting for housing provisions in the economic stimulus package to take effect.

Lawrence Yun, NAR chief economist, said first-time buyers accounted for half of all home sales last month, with activity concentrated in lower price ranges. “Because entry level buyers are shopping for bargains, distressed sales accounted for 40 to 45 percent of transactions in February,” he said. “Our analysis shows that distressed homes typically are selling for 20 percent less than the normal market price, and this naturally is drawing down the overall median price.

”Yun said that the sales activity in the West is much stronger than expected. “Strong sales gains in the West are led by California, where the median listing price is beginning to rise for the first time in three years,” he said.

The national median existing-home price was $165,400 in February registering a 15.5 percent decline compared last year when the median price was $195,800.Prices were depressed by the large number of foreclosed properties on the market, said NAR chief economist Lawrence Yun in a statement.

"Our analysis shows that distressed homes typically are selling for 20% less than the normal market price, and this naturally is drawing down the overall median price."

Meanwhile, the total number of existing homes on the market at the end of February rose 5.2% to 3.80 million units. At the current sales pace, it would take an estimated 9.7 months to sell down that inventory of properties.

Regionally, existing-home sales in the Northeast increased 15.6 percent to an annual pace of 740,000 in February, but are down 14.9 percent compared to February 2008 levels. The median price in the Northeast was $251,200, 4.8 percent behind from a year ago.

In the Midwest, existing home sales rose 1.0 percent in February to 1.04 million but are 14.0 percent lower than February 2008. The median price in the Midwest was $131,000, which is 7.8 percent below February 2008.

Existing-home sales in the South increased 6.1 percent to an annual pace of 1.74 million in February but are 11.2 percent behind a year ago levels. The median price in the South was $146,700, down 10.0 percent from a year ago.

In the West, existing-home sales increased 2.6 percent to an annual rate of 1.20 million in February and remain 30.4 percent higher than a February 2008. The median price in the West was $204,600, which is 30.3 percent below February 2008.

The report also said the total number of homes for sale has steadily declined over the past six months from a record level last July.