WASHINGTON - U.S. home sales increased 2.5% in July, a sign that lower mortgage rates have produced a spurt of home-buying.

The National Association of Realtors said Wednesday homes sold last month at a seasonally adjusted annualized rate of 5.42 million units, up from 5.29 million in June.

Average interest rates on 30-year mortgages have fallen to 3.60%, the lowest in nearly three years. Cheaper borrowing costs have enabled sales to rise 0.6% from a year ago, ending 16 consecutive months of annual sales declines.

The low rates are providing a boost to a housing sector where affordability remains an obstacle for many would-be buyers. Home prices have risen fastest for the bottom half of the market since 2012, making it harder to save for a down payment or manage monthly payments at a higher mortgage rate.

In the Atlanta, Denver, Miami and Tampa metro areas, prices have more than doubled for homes priced below the local median, according to an analysis of property records by Black Knight, Inc. The gains were generally much more modest for homes on the upper end.

In July, sales jumped a strong 8.3% in the West. The South and Midwest also posted higher sales. Purchases slumped in the Northeast.

Still, sales could be limited by a shortage of listings and home prices that are rising faster than incomes. The number of properties on the market has fallen 1.6% during the past 12 months to 1.89 million units, giving buyers fewer options.

The median sales price climbed 4.3% from a year ago to $280,800.