Updated from 11:38 a.m. EDT

The sales of previously owned homes surged in August on the heels of a three-month decline in mortgage rates, the

National Association of Realtors

said Monday.

Existing home sales

, which account for the bulk of U.S. housing market activity, increased 9.3% in August, much stronger than economists had predicted, to an annual rate of 5.27 million. This follows a revised 9.2% decline in July, to 4.82 million units, up from an original estimate of a 9.8% decline to 4.79 million units.

A group of economists polled by

Reuters

had predicted existing home sales would hit 4.85 million units in August, or a 1.3% increase from the initial July estimate.

Since peaking in May, mortgage rates have been in a steady decline.

"Clearly, affordable interest rates are the biggest key to the strength in this year's housing market," said David Lereah, the National Association of Realtors' chief economist.

The national average for 30-year mortgages hit 8.53% in May, according to

Freddie Mac

, the government mortgage lender. The rate hit 8.03% in August, down from 8.15% in July. That compares with 7.94% in August of 1999.

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Another economist said the U.S. housing sector has plateaued, and that home sales should slow in the coming months. "Housing affordability is unlikely to improve because job and income growth are slowing," said Bruce Steinberg, chief economist at

Merrill Lynch

. "As a result, we expect housing activity to trend modestly lower."

Regionally, all areas posted gains with the West the strongest, rising 16.3% to an annual rate of 1.43 million units. Home sales in the Midwest increased 10.6% from July to an annual clip of 1.15 million units, while the South posted a 5.8% gain in August. In the Northeast existing home sales rose 4.6% from July to an annual pace of 680,000 units.

Nationally, the median sale price was $142,200, down 0.8% from the previous month and up 3.5% from a year earlier when the median price for a home was $137,400.

Housing inventory levels slipped 5.3% at the end of August, with 1.62 million units available for sale. Inventory levels remain below 19.4% below the 2.01 million homes available in August of 1999.

Existing home sales data is viewed as a good gauge of consumer spending in general. While August's surprising strength contradicts other recent economic data that shows the economy cooling -- such as last week's figure that showed the pace of new home construction remained

muted in August -- it is unlikely to alter the view that the

Federal Reserve

is done raising interest rates for the near-term. Most market watchers view it as a foregone conclusion that the Fed will not raise rates at its Oct. 3 meeting, and will hold off at least until after the November presidential election. Indeed, Monday's data did not appear to disturb investors, as the

Dow Jones Industrial Average

was recently up 24 points to 10,870. The

Nasdaq Composite Average

was also up, at 3854.3, up 50.6 points, in morning trading.

In an attempt to cool demand and head off inflation, the Fed raised interest rates six times over the last 15 months. It kept rates steady at its most recent meeting, on Aug. 22.