updated 9/26/2005 2:03:14 PM ET 2005-09-26T18:03:14

Defying expectations, sales of previously owned homes rose in August to the second-highest level on record with home prices rising at the fastest pace in 26 years.

The National Association of Realtors reported Monday that sales of existing homes rose 2 percent in August to a seasonally adjusted annual rate of 7.29 million units, a sales pace that was exceeded only by an all-time high of 7.35 million units in June. Economists had been forecasting a slight decline, believing that the red-hot housing market was finally beginning to cool off.

The strong demand pushed prices up to a record level of $220,000 last month, a gain of 15.8 percent from August 2004. That was the biggest 12-month increase since a 17.2 percent increase in July 1979.

By region of the country, sales were up in every area but the South, which saw a small 0.4 percent drop last month.

While the Realtors predicted that Hurricane Katrina, which came ashore in New Orleans in late August, would impact sales in September, they said the impact in August appeared to be minimal.

Sales were up 5.6 percent in the West and rose by 1.9 percent in the Midwest and 1.7 percent in the Northeast.

The 15.8 percent rise in median home prices — the point where half the homes sold for more and half for less — was just the latest in a string of double-digit increases in home prices over the past number of months.

Federal Reserve Chairman Alan Greenspan has worried that exotic mortgage products such as interest-only loans are allowing people to purchase homes that they may not be able to afford if interest rates rise, pushing their monthly payments higher.

David Lereah, chief economist for the Realtors, said he believed that price increases will slow in coming months as the inventory of homes for sale continues to rise.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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