Sales of previously owned homes dropped 2.6 percent in July as mortgage rates crept up, the National Association of Realtors (search) said Tuesday, but even with the decline, sales clocked in at the third-highest level on record.

The latest snapshot of housing activity suggested that the sizzling housing market may be cooling a bit but nonetheless remains in healthy shape.

The 2.6 percent decline from the previous month pushed sales down in July to a seasonally adjusted annual rate of 7.16 million units.

The decrease came after sales soared in June, hitting a new record pace of 7.35 million units, according to revised figures. June's performance turned out to be even stronger than previously estimated just a month ago.

The median sales price -- where half sell for more and half sell for less -- of an existing home was $218,000 in July, up 14.1 percent from a year ago.

Federal Reserve (search) Chairman Alan Greenspan (search) has warned of "speculative fervor" in some local housing markets that may be pushing prices up to unsustainable levels.

However with the inventory of homes available for sales rising in July, that could take some pressure off prices, said the association's chief economist David Lereah.

By region, sales were down in all parts of the country, except for the South, where they were flat.

The overall drop in sales of previously owned homes comes as mortgage rates rose. The average rate on 30-year mortgages in July was 5.70 percent, up from 5.58 percent in June. Even with the increase, though, mortgage rates are still considered low by historical standards.

To fend off inflation, the Federal Reserve earlier this month boosted short-term interest rates by one-quarter percentage point. It marked the 10th increase of that size since the Fed began to tighten credit in June 2004. Another bump-up is expected at the Fed's next meeting on Sept. 20.