Sales of new U.S. homes dropped a larger-than-expected 9.9 percent in August and the supply of homes for sale surged to a record high, but prices resumed their upward climb, a government report showed on Tuesday.

The Commerce Department (search) said new single-family home (search) sales fell to a seasonally adjusted annual rate of 1.237 million units, the slowest pace since January, from a downwardly revised 1.373 million units in July. July's sales pace was a record.

The August sales pace was 6.2 percent higher than a year earlier.

Economists had expected new home sales to decline to a 1.340 million unit pace from July's originally reported 1.410 million unit rate.

The decline in sales, the sharpest drop since November, pushed the supply of homes on the market up to a record 479,000 at the end of August. At August's sale pace, that represented a 4.7 months' supply, the most since June 2000.

The median homes sales price rose for the first time in fourth months, hitting $220,300 — off slightly from the start of the year.

Sales dropped in all four major regions of the country. They were off 22 percent in the Northeast, 17.9 percent in the West, 10.6 percent in the Midwest and 2.2 percent in the South.

While the report suggested some cooling in the red-hot U.S. housing market, it stood at odds with a report released on Monday that showed sales of existing homes rose 2 percent in August to the second-highest level on record.

On Monday, the National Association of Realtors (search) said sales of existing U.S. homes rose 2 percent in August to the second highest level on record.

Sales of previously owned homes increased to a seasonally adjusted 7.29 million unit annual rate last month from July's downwardly revised 7.15 million unit pace, NAR said. That figure includes both single-family homes (search) and condominiums.

Hurricane Katrina (search) did have an impact on sales, but NAR said it would not be able to quantify the effect for several months.