Sales of new houses in the U.S. unexpectedly rose in September from a 17-year low, propelled by a drop in prices ahead of the latest turmoil in financial markets.

Purchases increased 2.7 percent to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington. The median sales price decreased to a four-year low.

The drumbeat of builder bankruptcies since the middle of last year and frozen credit markets signal a collapse in mortgage lending that may extend the housing recession into a fourth year. Federal Reserve policy makers, meeting this week, are projected to cut interest rates again in a bid to alleviate the damage from the collapse in financial markets.

"Builders are seeing the light," Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, said in a Bloomberg Television interview. "They are cutting prices more aggressively. They're very nervous about all the foreclosures."