By Safiyah Riddle

Sales of new U.S. single-family homes rose in July, as an acute shortage of existing homes drove buyers to new units.

New home sales shot up 4.4% to a seasonally adjusted annual rate of 714,000 units last month, the Commerce Department said on Wednesday. The sales pace in June was revised lower to 684,000 units from the previously reported 697,000 units.

Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would rise to a rate of 705,000 units.

New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales increased 31.5% on a year-on-year basis in July.

The median new house price in July was $436,700, a drop of 8.7% from a year ago.

The inventory of existing homes is near historically low levels as mortgage rates hit the highest levels since 2000, dissuading existing home owners who are locked into low rates from putting their homes on the market.

The shortage of existing home inventory, which constitutes the majority of the market, is pushing potential buyers towards new houses and driving a flurry of new construction.

The median home price for existing homes increased on an annual basis in August, according to a report released on Tuesday, as the shortage of properties offset the impact of high mortgage rates that had dampened demand in prior months.

The overall housing market continues to stabilize, but record-breaking mortgage rates, the renewed house price appreciation and an acute supply shortage could complicate that recovery.

Home prices were initially the most sensitive to the Federal Reserve's interest rate hikes - the U.S. central bank has raised rates by 5.25 percentage points since March 2022 - but have stabilized after falling into recession and are still adding significant upward pressure to overall inflation.

(Reporting by Safiyah Riddle; Editing by Paul Simao)