US new home sales rise at fastest pace since 2007

US new homes sales jumped in July to their fastest rate in nearly nine years, according to Commerce Department figures.

Low interest rates on mortgages and an improving jobs market have helped boost the US real estate market.

New home sales increased by 12.4% in July month-on-month to a seasonally adjusted rate of 654,000 annual units.

But construction of new single-family homes has slipped, meaning supply might be falling behind demand.

Last month, the US housing market had 4.3 months' supply of homes for sale. That is down from a 5.2 months supply in July 2015.

With central bank interest rates at between 0.25% and 0.5%, the cost of mortgage borrowing has been low for house buyers. Combined with a strengthening jobs market and a slight uptick in wages over the last year, housing demand has been boosted.

Dips in the supply of housing can lead to stagnation in the market because families are unable to upgrade to larger houses and put their homes on the market. First-time buyers, in turn, are left with fewer options for starter homes.

Construction of single-family homes has picked up this year and investors believe that trend will continue.

Shares of building companies such as Toll Brother and Lennar Corp have risen over the last few quarters and both were up more than 1% in early trading on Tuesday.

"We see tremendous growth potential in new home sales as housing demand continues to grow and the continued supply shortage of newer vintage homes," said Tian Liu, chief economist at Genworth Mortgage Insurance.

Sales in Northeast US were up 40% in July, while sales in the South rose by 18%. Sales in the West and Midwest were flat.

The median home price fell by 0.5%, potentially reflecting the regional mix of where homes were sold.