The increase, which was unexpected, followed the previous high of 6.81 million in May. The median selling price rose 5.2 percent to a record $191,800. The inventory of houses for sale dropped to 4.1 months' worth, the lowest since December 2001, from 4.3 months' supply.

``When you combine the fact that people are working and we have low mortgage rates, you get a healthy housing market,'' Tom Kunz, chief executive officer of Cendant Corp.'s Century 21 real estate unit, said. Prices ``may not rise like they have in the past, but I don't think we'll see a decline.''

The economy so far this year had the strongest six months of job growth since 2000, and the average rate on a 30-year fixed mortgage exceeded the all-time low by less than a percentage point. The Washington-based Realtors group says resales this year will beat the annual record set in 2003.

Sales rose in all regions last month, increasing 3.5 percent in the Midwest to 1.46 million at an annual rate, 3.1 percent in the West to 1.99 million, 2.8 percent in the Northeast to 740,000 and 0.4 percent in the South to 2.76 million.

Housing, which includes construction, improvements, and sales commissions, accounted for about 5 percent of the $11 trillion U.S. economy in the first quarter, according to the Commerce Department. Commissions probably grew 75 percent at an annual rate, the most in 20 years, in the April-June quarter, said Ted Wieseman, an economist at Morgan Stanley in New York.

Economic Impact

Residential investment, or housing, will probably grow at an 11 percent annual rate in the second quarter, more than twice the pace of the prior three months, Wieseman said.

The 10 percent increase in the median price from $175,000 a year earlier reinforces the argument from Ian Morris of HSBC Securities USA and some other economists that prices exceed supply-and-demand fundamentals and the speculative ``bubble'' will burst.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, is the most recent Fed official to dismiss such concerns. Low interest rates ``have certainly accommodated a boost in the demand for housing,'' he said after a speech today in Denver.

``As you look as housing prices across the nation, they have risen, but not so much as to make it look like a bubble,'' Hoenig said.

Market Share

Resales account for 85 percent of the residential real estate market. New home sales, which account for the rest, probably fell in June to 1.273 million at an annual rate after a record 1.369 million the previous month, based on a survey of economists before tomorrow's Commerce Department report.

Existing home sales were forecast to fall to a 6.65 million annual rate in June, according to the median estimate in a Bloomberg News survey. Last year, a record 6.1 million previously owned homes were sold. The association expects sales of 6.3 million this year.

`Tremendous Momentum'

Treasury notes fell after the report raised speculation that other statistics this week will add to evidence that June's slowdown was temporary. The Treasury's 4 3/4 percent note maturing in May 2014 fell 14/32 point, pushing up the yield 5 basis points to 4.49 percent at 4:45 p.m. in New York.

``It's clear the market has tremendous momentum,'' said David Lereah, chief economist at the real estate association. ``It's unlikely we'll top the pace in June but home sales remain very healthy and are likely to stay quite strong.''

Sales of new houses are recorded when a contract is signed, while resales are tabulated when transactions close, which often occurs a month or two later. The rise in previously owned homes may have reflected changes in mortgage rates in April and May.

The 30-year fixed-rate mortgage averaged 5.83 percent in April and 6.27 percent in May, according to Freddie Mac, the second-biggest purchaser of U.S. mortgages, based in McLean, Virginia.

``Six percent is a heck of a rate,'' said Kunz, who became chief executive of Century 21 in June. ``We'll get some adjustments as rates go up. As long as we're in single digits,'' demand will be strong.

Purchase Applications

Mortgage purchase applications suggest sales will remain robust. June purchase applications were 12 percent higher on average than in 2003, according to figures from the Mortgage Bankers Association.

Borrowing costs declined this month after economic reports suggested that growth cooled in June, and are now less than a percentage above the all-time low of 5.21 percent, reached in June last year, according to Freddie Mac.

An improving labor market may help sustain housing demand in the second half of the year even as interest rates increase amid stronger economic growth, economists including Michael Englund at Action Economics, said.

The Federal Open Market Committee raised its target for overnight loans between banks on June 30 to 1.25 percent from 1 percent. The committee will raise the rate by another quarter point at its Aug. 10 meeting, according to the median forecast in a Bloomberg News survey of economists. That may help push up mortgage rates in the second half, economists said.