WASHINGTON (MarketWatch) -- Boosted by foreclosures and plunging prices in the West, sales of pre-owned homes and condos rose sharply in September to the highest level in 13 months, an industry trade group reported Friday.

Existing-home sales rose 5.5% to a seasonally adjusted annual rate of 5.18 million, the National Association of Realtors estimated Friday. Economists surveyed by MarketWatch expected sales to rise to a 5 million pace from 4.91 million in August. See Economic Calendar.

It was the largest monthly percentage increase in five years. Read the full report.

Sales of existing homes were 1.4% higher in September than they were a year earlier; it was the first year-on-year increase in nearly three years.

Housing: More Doom & Gloom Ahead

The report measures home sales closed in September on sales contracts signed one or two months earlier. Credit became less available in late September and in October after the global credit crunch tightened.

The median sales price fell 9% in the past year to $191,600, the lowest since April 2004. Prices plunged 18.5% in the West region in the past year, driven by rising foreclosures and distressed sales.

Sales surged a record 17% in the West in September, representing about two-thirds of the growth in national home sales in the month.

Distressed sales -- such as short sales or foreclosures -- represent about 35% to 40% of total sales nationwide, the NAR said, and as many as half of the homes sold in California, Nevada and other former bubble regions. Foreclosed homes sold at auction are not included in the sales figures.

The increase in sales could be a "first step" in a global recovery, said Lawrence Yun, chief economist for the real estate trade group. "The first step is for buyers to return to the marketplace," he said. Later, home prices can improve, leading to more confidence in mortgage-backed securities and in financial markets overall.

"Prices don't have to fall much more," said Bill Hampel, chief economist for the Credit Union National Association. "Current prices seem to be sufficient to absorb" the number of homes coming onto the market due to default.

"We have a ways to go on prices" before we've seen the bottom, said Bob Walters, chief economist for Quicken Loans. California still has many more painful adjustments to make, including a large number of option adjustable rate loans that will soon reset, he said.

Inventories of unsold homes on the market fell 1.6% to 4.27 million, representing a 9.9-month supply at the September sales pace.

Sales of single-family homes rose 6.2% in September and are up 3.8% in the past year. Sales of condos were unchanged in September and are down 15.7% in the past year.

Yun said he believed the bottom had been seen in terms of sales, but the recession made his forecast highly uncertain.

Sales soared 16.8% in September in the West and are up 34.4% in the past year. Sales rose 4.4% in the Midwest, and 2.2% in the South. Sales fell 1.2% in the Northeast.