Athena Cao

USA TODAY

New-home sales surged in July to the highest level in almost nine years as strong demand amid low interest rates and low existing inventory helped boost the housing market.

Sales of new single-family houses jumped 12.4% from June to a seasonally adjusted annual rate of 654,000, the highest level since October 2007. Sales were 31.3% above their showing a year ago, the Commerce Department reported Tuesday.

Houses were sold at a median price of $294,600 in July, and the average price was $355,800.

While new-home sales figures are usually volatile, the July report is a rare case, said Ralph McLaughlin, chief economist at Trulia.

"The year-over-year change is statistically significant, indicating the surge in sales can be taken with more than just a grain of salt."

The supply of new homes fell for a second straight month to a supply of 4.3 months at the current sales pace. Inventory of existing homes slipped in June to 4.6 months from May. A supply of six months is considered the benchmark for a balanced market. The shrinking supply shows a solid demand, McLaughlin said.

Sales grew across most of the nation. In the South, the largest housing market among the four regions tracked by the Census, transactions on new homes grew 18.1%. Meanwhile, the Northeast grew 40% and the Midwest saw a 1.2% rise. Sales in the West were flat.

Houses priced from $200,000 to $399,999 remain the bulk of total sales, while transactions of homes with a price tag below $150,000 or higher than $750,000 increased from June.

With strong demand, persisting high sales and low inventory, price hikes could be on the way if homebuilders don’t up production, said Matthew Pointon, property economist at Capital Economics.

“The fact housing starts have stalled of late is therefore something of a concern, but we suspect activity will pick up soon as builders shift their focus towards lower-priced/higher volume single-family starter homes,” Pointon said, adding that “the delay between housing starts and completions suggests conditions in the new-home sector will remain tight for a few months yet, so sales growth in the short term should slow.”