Purchases of new U.S. homes unexpectedly jumped in July to the highest level in almost nine years, led by soaring demand in the nation's south and adding to signs of persistent housing-market strength.

Sales increased 12.4 percent to a 654,000 annualized pace, the fastest since October 2007, Commerce Department data showed Tuesday in Washington. That exceeded the most optimistic forecast in a Bloomberg survey. Purchases in the South were the strongest since before the start of the last recession.

However, sales of single-family homes in Massachusetts dropped 12.5 percent in July compared to the same month last year, according to the Warren Group of Boston, which tracks state real estate transactions. It was the first time the number of homes sold in the state has dropped this year. Year-to-date, single-family home sales in Massachusetts are up 15.2 percent.

Employment gains and historically low borrowing costs are providing firm support for housing demand, helping reduce inventory, which will probably keep new construction elevated. The report showed an increase in the share of homes sold for less than $300,000, indicating builders are turning their sights to entry-level buyers.

"Perfect sense"

The increase "makes perfect sense when interest rates are low, credit continues to ease, and the consumer is in decent shape given the jobs market," said Brett Ryan, U.S. economist at Deutsche Bank Securities Inc. in New York. "You're seeing finally that builders are responding with more supply, and that's been one of the big problems in the current cycle."


The median forecast of 72 economists surveyed by Bloomberg called for the pace of sales to decelerate to 580,000. Estimates ranged from 540,000 to 610,000.

The Commerce Department revised the June reading lower to a 582,000 pace from a previously estimated 592,000. It's still less than half the record pace of 1.39 million sales in 2005, before the housing bubble burst.

In a sign that construction will contribute to economic growth in coming months, the number of homes sold but not yet started climbed to the highest level since May 2007.

The department said there was 90 percent confidence that the change in sales last month ranged from a 0.3 percent drop to a 25.1 percent increase, underscoring the volatility of the data.

The increase in demand in July included an 18.1 percent jump in the South to a 398,000 rate, the highest since July 2007. In the Midwest, demand was the strongest since November 2007, while the Northeast posted a gain and the West was unchanged.

The supply of homes fell to 4.3 months from 4.9 months in June. There were 233,000 new houses on the market at the end of July, the least since November.

The median sales price of a new house declined 0.5 percent from July 2015 to $294,600, Tuesday's report showed.

New-home sales, which account for about 10 percent of the residential market, are tabulated when contracts are signed.