Sales increased 4.8% to a seasonally adjusted annual rate of 770,000 from a revised 735,000 in August, an 11-year low. Previously, August's sales had been reported at a 795,000 pace. Read the full report.

September's sales were slightly higher than the 758,000 pace expected by economists surveyed by MarketWatch. See Economic Calendar.

The three previous months were revised sharply lower, which means the housing market was much weaker in the middle of the year than previous believed, and no one believed it was strong.

"The crash continues," wrote Ian Shepherdson, chief economist for High Frequency Economics. Sales fell at a 35% annualized pace in the third quarter, he said.

The large revisions highlight the low confidence that government statisticians have in the monthly report and the frequent large revisions it undergoes. Longer trends do a better job of showing the reality of the housing market than volatile monthly numbers.

Sales of new homes are down 23.3% in the past year. The sales figures do not account for canceled sales contracts, which have surged in recent months, especially since the seizing up of some mortgage markets. Many buyers are unable to find financing at the rate they want.

Inventories of new homes on the market fell 1.5% to 523,000, representing an 8.3-month supply, down from 9 months in August. The inventory of completed homes continued to rise, however.

New construction on single-family homes has plunged 31% in the past year, according to a separate report released earlier.

Sales rose in two of four regions in September, with sales in the West rising 38% after a 23% drop in August. Sales fell 19.5% in the Midwest to the slowest pace in 16 years. Sales dropped 6.6% in the Northeast and were essentially flat in the South, rising 0.5%.

The median sales price of $238,000 was up 5% compared with a year earlier.

On Wednesday, the National Association of Realtors reported an 8% drop in existing-home sales, while inventories of existing single-family homes rose to a nearly 20-year high. See full story.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common. The standard error of 10.3% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell.

It can take up to five months for a trend in sales to emerge. New-home sales have averaged 806,000 per month over the past five months, compared with 833,000 in the five months ending in August.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months, with some builders reporting that 50% of orders are cancelled. Cancellations are not reflected in the government data, so the reported sales are likely overstated, and inventories are unstated.

In other reports released Thursday, the Commerce Department said orders for durable goods fell 1.7% as demand for defense goods dropped. Outside of defense, orders rose 0.7%. See full story.

The Labor Department said filings for unemployment benefits fell by 8,000 last week to 331,000, while the less-volatile four-week average rose to a seven-week high.