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New home sales show some signs of life, but September sales were still a third lower than year-ago levels.

NEW YORK (CNNMoney.com) — Sales of newly constructed homes rose in September, according to the monthly report from the U.S. Census Bureau, inching up 2.7% from August to an annualized rate of 464,000.

The reading was above the consensus forecast of 450,000, according to economists surveyed by Briefing.com.

But new home sales are still down 33.1% from September of 2007, and far below the pace of the boom years. In 2005, for example, 1.3 million new homes were sold.

In response to slower sales, home builders have been reducing their production. As a result inventory has fallen, but there were still about 394,000 new single family residences on the market at the end of September. At the current pace of sales, that would take 10.4 months to sell through.

The median selling price for a new home was $218,400 during the month, down from $221,900 in August, while the mean selling price was $275,500, up from $263,900.

“We’re clearly seeing some pick-up in regional areas where home prices have fallen,” said Mike Larson, a real estate analyst with Weiss Research. “The drops have spawned some bottom fishing.”

Indeed, new homes sales jumped 22% in the West, the nation’s hardest-hit area, according to the report, while other regions were down or flat. And, sales in that region are still off nearly 38% on a year over year basis.

He added that home builders have made a concerted effort to move inventory by rolling out incentives such as free upgrades and reduced rate financing. That means that buyers may be getting even better deals than the lower median home prices indicate.

Although Larson conceded that the latest Census Bureau numbers were positive, he cautioned that they occurred before the financial crisis fully took hold this Fall.

“The rest of 2008 will probably not be as good,” he said.

Home builders seem to agree with that assessment. Earlier this month, the National Association of Home Builders reported that builder confidence had fallen to a record low.

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