Existing-home sales -- including single-family, townhomes, condominiums and co-ops -- rose 5.5 percent to a seasonally adjusted annual rate of 5.18 million units in September, up from a level of 4.91 million in August, according to data released Friday morning by the National Association of Realtors. Sales volume was 1.4 percent higher than the 5.11 million-unit pace in Sept. 2007, the first year-over-year gain posted in existing home sales since November 2005. "The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island," said NAR chief economist Lawrence Yun. "The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike." That said, much of the sales activity was of the foreclosed variety -- something we've covered extensively in the past here at HW. "Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40 percent of transactions. These are pulling the median price down because many are being sold at discounted prices," Yun said. The median existing single-family home price was $190,600 in September, 8.6 percent below year-ago levels; condo prices fell 10.2 percent in Sept., to a median of $199,400, the NAR said. Much of the foreclosure bargain-hunting was in the Western states, including California, which saw sales jump 16.8 percent to an annual rate of 1.25 million in September, 34.4 percent higher than one year earlier. The median price in the West was $253,600, however, down 18.5 percent from a year ago. Only the Northeast region saw sales slip, falling 1.2 percent to an annual pace of 840,000. Inventories down or merely shadowed? Total housing inventory at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, the NAR reported, which represents a 9.9-month supply at the current sales pace, down from a 10.6-month supply in August. The drop marks two consecutive monthly declines since inventories peaked in July. "The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac. Inventory remains high, and price declines are pressuring owners," said Yun. The NAR is now actively pushing for additional stimulus in the form of higher tax credits for home buyers as well as a removal of the repayment feature tied to the original first-time buyer tax credit passed by Congress earlier this year -- all in the name of propping up demand, of course. More than a few of HW's sources, however, have questions surrounding recent inventory declines. Most economists acknowledge that there is a large so-called "shadow inventory," for one thing -- borrowers who have removed their homes from the market in an attempt to wait out current conditions, but who are likely to put their homes back into MLS systems at the first hint of thawing in the housing market. That's likely to happen to some extent now, said one analyst that spoke with HW. "Watch for inventories to rise as potential sellers sense an opportunity with foreclosed units moving," said the analyst, who asked not to be named. "That will force further pushback on prices and units sold, since most retail sellers can't compete with REO on price." Beyond shadow inventory, recent trending in roll rates -- the number of non-performing mortgages moving from one status to the next -- suggests that lenders and servicers are substantively holding off on foreclosures for one reason or another. The result is that many foreclosured/REO properties that would otherwise be on the market are stuck in the foreclosure process; the result is an artificial depression of inventories, sources told HW. In particular, the number of loans rolling into delinquency has continued to increase in recent months, but REO and foreclosure rolls have not -- with cure rates holding largely constant, and repayment rates holding steady to decreasing, the implication is that servicers are not progressing to foreclosure sale with a large number of troubled borrowers. Part of the reason for this likely lies with local legislation, an issue HW covered Thursday -- in states like California, new notice requirements have essentially hit the pause button on foreclosures, an effect that most analysts expect to be temporary at best. Underscoring how local legislation tends to only temporarily stall foreclosures, initial foreclosure filings in Massachusetts soared 465 percent between August to September after being much lower than normal in June, July and August, according to data released earlier this week by RealtyTrac. That temporary lull happened after a new law took effect in May requiring lenders to give homeowners a 90-day right to cure notice before initiating foreclosure. But in September, about 90 days after the law took effect, initial foreclosure notices jumped back up close to the levels seen earlier in the year. California passed similar legislation earlier last month. Given California's overall importance in the national housing statistics, and the degree to which foreclosures are affecting California's housing markets, the effect of a new law there is likely to artificially depress reported housing inventory within the state -- and, by extension, at the national level as well. For more information, visit http://www.realtor.org.