U.S. new home prices took their biggest hit in more than 35 years in September, according to a government report released today.

The lower prices helped spur sales, as the annual pace of new home sales increased to 1.08 million last month, according to the U.S. Census Bureau report, up 5.3% from the August reading of a 1.02 million annual rate, which was revised lower.

Economists had forecast a reading of 1.05 million, which would have been flat with the initial August reading.

But the median price of a new home tumbled 9.7% from a year earlier to US$217,100. It was the sharpest drop since December 1970, when prices posted an 11.2% decline, and was the fourth largest year-over-year decline on record.

The September price slump also marked a 9.3% decline from August and a 15.5% drop from the record high price of US$257,700 posted in April of this year.

In addition, the government’s measure of prices doesn’t capture all the incentives such as free closing costs that many builders have been offering to boost sales.

The collapse in pricing is likely due to the oversupply of homes on the market, due greatly to the building boom of last year.

The number of completed new homes available for sale at the end of the period rose to a record 157,000. That is up 50,000 homes, or 47%, from the supply of completed homes on the market a year earlier.