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Data released by the U.S. Department of Commerce on Friday showedU.S. new home sales surged in July to their highest level since May 2023.New home sales were boosted by buyers taking advantage of lower mortgage rates and a wider selection of homes.

U.S. new home sales in July were 739,000, compared with expectations of 623,000 and 617,000 in June. New home sales in July rose 10.6% month-on-month, compared with expectations of a 1% increase and a 0.6% month-on-month decline in June. This new home data exceeded all estimates of economists surveyed by the media.

Regionally, new home sales increased in all four major regions of the U.S. Among them, sales growth in the West was the fastest since February 2022, and contract signings in the Midwest were the strongest in three years.

Builders' inventories fell as sales rebounded.Inventory fell to its lowest level since the beginning of the year. Still, at 462,000 homes for sale, it remains near the highest level since 2008.Based on the current sales rate, it will take 7.5 months to digest the inventory in the market. The inventory-to-sales ratio is the lowest since September last year, but it is still higher than the level before the COVID-19 pandemic.

High inventory helped keep a lid on prices, with the median new-home sale price falling 1.4% to $429,800 in July from a year ago.There has only been one month this year where new home prices have not recorded a year-on-year decline, which is in contrast to the continued record highs in the existing home market.

Analysts pointed out that the recovery in new home sales shows that the combination of lower mortgage rates and generous sales incentives from home builders has worked. As the supply of existing homes is still very limited, potential buyers have found more options in the new home market. Compared with the existing home market, the asking price of new homes is more competitive.

Currently, U.S. mortgage rates have fallen to 6.5% from a peak of nearly 7.3% in April, and are expected to fall further as the Federal Reserve prepares to start cutting interest rates next month. Fed Chairman Powell hinted on Friday that a rate cut is imminent and it is time to adjust policy.

Despite weak sales in the overall housing industry, the nation's largest home builders have posted strong profits as they cut prices and lower mortgage rates for customers to attract buyers. Shares of luxury builder Toll Brothers rose earlier this week after reporting that deliveries would hit the high end of its full-year forecast. The entire homebuilder sector also performed well, with the SPDR S&P Home Builders ETF outperforming the broader market.