NEW YORK (CNN/Money) - The pace of new home sales picked up in August, a government report showed Monday, as the closely watched reading of housing market strength came in stronger than Wall Street expected.

The Census Bureau report showed new homes sold at an annual pace of 1.18 million homes, up from the revised 1.08 million annual sales pace in July. Economists surveyed by Briefing.com forecast an annual sales pace of 1.15 million homes.

The report showed median and average home prices both fell from July levels, although both were well above readings a year earlier.

The median price, which reflects the midpoint where half the homes sell for more and half sell for less, came in at $208,900, down 2.6 percent from July pricing but up 9.7 percent from a year earlier. The average sales price was $267,000, down 5.9 percent from July's average but up 10.8 percent from August 2003.

Wachovia Securities economist Jason Schenker said the month-to-month decline in prices, even in the face of higher prices for building materials, does not indicate any weakness in the market.

"One month does not a trend make," he said. "If we began to see year-over-year fall, that would be different. But year-over-year is up significantly."

The pace of existing home sales slowed in August, although it stayed high by historic levels, according to an industry report last week.

Existing home sales are a larger part of the overall real estate market than new home sales. But new home sales are seen as a more important economic barometer, because they spur greater purchases of new appliances and furnishings than existing home sales, as well as contributing to construction employment.

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Existing home sales are booked at the time of closing by realtors, who track those sales, rather than at the time of a sales agreement or a deposit, as is the case for new home sales data. So the recent low mortgage rates are more likely to show up first in new home sales data than the reading on existing home sales.

New home sales were down in June and July; Freddie Mac's survey showed the average 30-year mortgage rate climbed above 6 percent during those months. Rates fell below 6 percent once again in August and have remained there, coming in at 5.7 percent in the most recent weekly survey. Some economists question what will happen when mortgage rates start to climb.

"Levels of home sales are still solid," said Robert Brusca of FAO Economics. "And with rates falling, some (continued) rebound may be seen in the next few months. But we appear to be near to a peak."