WASHINGTON (Dow Jones)--Existing home sales rose unexpectedly to a record-high level in June, but economists said higher interest rates mean current growth rates won't continue.

U.S. home resales increased to a 6.95 million annual rate in June, a 2.1% rise from May's record level, which was revised to a 6.81 million annual pace, the National Association of Realtors said Monday. The median home price also rose to a record $191,800 in June from a revised $182,400 in May.

NAR senior economist Lawrence Yun joined Wall Street economists in expressing surprise at a second-straight month of record resales data.

"We are anticipating some slowdown, but it has not yet occurred, to our surprise," said Yun. The slowdown is likely if 30-year mortgage rates rise toward 7% as expected over the next six to 12 months, he said.

Lehman Brothers Economist Drew Matus said the June resale data were not entirely surprising in light of record May new home sales. New home sales data, which are based on signings, tend to be a leading indicator for existing home sales, which are based on closings.

"Can we sustain high rates of activity? Yes. Can we sustain these levels? I think not," Matus said. "Higher mortgage rates will over time have some impact on the housing market."

Even if the labor market strengthens, sales data are likely to fall back given the sharp run-up in the housing market and widespread expectations that the Federal Reserve will continue to raise rates this year, said Asha Bangalore, an economist with Northern Trust.

With the annual resales rate in June nearly 14% above the full-year 2003 figure of 6.1 million, Bangalore said a correction of 10%-15% in the near term would not be surprising, nor would some fallback in house prices.

Even such a correction would leave resales above the past nine-year average of about 5 million units a year, she said.

Lehman's Matus said he doesn't expect an absolute fallback in prices yet, but it is possible, especially on a regional level.

Economist Stephen Stanley of Greenwich Capital Markets said existing home sales "should pull back somewhat but remain historically vigorous."

Mortgage applications for purchase cooled off a bit in June and early July from record levels seen in the spring, but are still robust, Stanley said.

The June resales data led to "a sigh of relief" after recently weaker data for housing starts and building permits, said Bob Moulton, president of Americana Mortgage Group.

Moulton said the record-high resales are attributable to stable, low mortgage rates now below 6% for 30-year loans. "Even if we drift back up another quarter percentage point the market can stay firm," he said.

An interest rate level of 7%-8% would begin to soften the market, Moulton said.

The June report came in stronger than Wall Street expectations for existing home sales at a 6.65 million annual rate. Economists expect the Commerce Department to report Tuesday that new home sales cooled off in June, falling to a 1.29 million annual rate after May's record-high rate of 1.37 million.

The NAR report on existing homes comes less than a week after the Commerce Department reported that U.S. housing starts fell a sharp 8.5% in June, contrary to Wall Street expectations of a slight increase.

The NAR has said recent record-high existing homes sales rates reflected "fence-jumping" by buyers and sellers who saw interest rates beginning to rise in April. The association has said sales in the second half of the year are likely to be slower but still strong. It said full-year 2004 sales are likely to be a new record.

NAR's Yun said the group is likely to revise up its current forecasts for full-year home resales from 6.3 million.

Mortgage rates have been at historically low levels for nearly a year. The average interest rate on 30-year fixed-rate mortgages was 6.29% in June, up from 6.27% in May. It was 5.23% in June of 2003.

The inventory of homes on the market fell to 4.1 months in June from May's revised level of 4.3 months, NAR said. The last time inventories were lower was the 4.0-month level reached in March 2000, it said.

Existing home sales among the regions were all higher. In the Northeast, sales were up 2.8% while in the Midwest sales rose 3.5%. Home resales in the South gained 0.4% and the West region saw sales advance 3.1%.

-By Campion Walsh and Dawn Kopecki, Dow Jones Newswires; 202-862-9249; campion.walsh@dowjones.com