Even with the drop, sales were the fourth highest ever recorded in one month since the association began keeping records in 1968.

"Housing is continuing to be a significant factor in sustaining the U.S. economy," said the association's chief economist David Lereah.

"Going forward, the trend should be a gradual decline in home sales activity but they'll stay above last year's record," he added.

For all of 2001, a record 5.3 million existing homes were sold. The association expects sales figures this year to top that.

By region, sales in May declined 3.9 percent in the South to a seasonally adjusted annual rate of 2.20 million.

In the Northeast, sales dropped 2.9 percent to a pace of 680,000.

But in the West, sales rose 4.5 percent to a rate of 1.62 million, and in the Midwest, they increased to a rate of 1.25 million, a 1.6 percent advance.