By Sharon Nunn and Sarah Chaney

WASHINGTON-Sales of previously owned U.S. homes held steady in August after a stretch of weakness in the housing market.

Existing-home sales were flat in August from the previous month at a seasonally adjusted annual rate of 5.34 million, the National Association of Realtors said Thursday. Economists surveyed by The Wall Street Journal had expected sales to notch a 5.38 million annual rate last month.

Compared with a year earlier, sales in August declined 1.5%.

Lawrence Yun, the trade group's chief economist, said "the strongest demand our realtors are indicating are in the lower price points, but sales are down because of lack of inventory."

This year's sales slowdown has stemmed from growing challenges for the housing market. A shortage of homes for sale at a time when continued job and wage growth are supporting demand have contributed to a rapid run-up in home prices.

Meanwhile, mortgage rates have risen in the last year, increasing the cost of buying a home. The average interest rate on a 30-year fixed-rate mortgage in August was 4.55%, up from 4.03% in January, according to Freddie Mac.

The median sale price for an existing home in August was $264,800, up 4.6% from a year earlier. There was a 4.3-month supply of homes on the market at the end of August, based on the current sales pace.

The Trump administration's tax bill also reduced some incentives for homeownership, especially in costly coastal markets and high-tax areas, by reducing the cap for the deductibility of mortgage interest and limiting the amount of state and local taxes that can be deducted.

Purchases of previously owned homes account for the bulk of U.S. home-buying activity. The Commerce Department releases data on August new-home sales next Wednesday.

In another area of the housing market, home construction grew robustly in August. Still, this was largely because of building for multifamily housing, while construction in the single-family home category grew at a slower pace. Meanwhile, a gauge of homebuilder sentiment flatlined in September after drifting lower for much of 2018.

"With mortgage rates at a seven-year high, home builder sentiment trending lower, and an increased threat of tariffs further pressuring existing affordability challenges, the ho-hum results of August [construction] could very well be the norm for the foreseeable future," Scott Volling, a principal at PwC, said after the home construction report was released.

News Corp., owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

Write to Sharon Nunn at sharon.nunn@wsj.com and Sarah Chaney at sarah.chaney@wsj.com.

(END) Dow Jones Newswires

September 20, 2018 10:15 ET (14:15 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.