NAHB chairman Ed Brady “As existing home inventory remains flat, we should see more consumers turning to new construction,” says NAHB’s Ed Brady.

WASHINGTON, DC—Economists’ expectations for July new-home sales were left in the shade as Commerce Department figures showed the highest monthly reading in almost nine years. The National Association of Home Builders chalks up the surge in demand in part to flattening inventory of existing homes.

Tuesday’s Commerce Department report put July sales at a seasonally adjusted annual rate of 654,000, topping the revised June rate of 582,000 by 12.4% and the year-ago rate by 31.3%, while exceeding even the most optimistic projections of economists polled by Bloomberg and Reuters. The consensus from both organizations called for July new-home sales, which account for about 9.6% of the total, to decline to an annualized pace of 580,000 homes.

“This rise in new home sales is consistent with our builders’ reports that market conditions have been improving,” says NAHB chairman Ed Brady, a home builder and developer from Bloomington, IL. “As existing home inventory remains flat, we should see more consumers turning to new construction.”

Adds Robert Dietz, the association’s chief economist, “July’s positive report shows there is a need for new single-family homes, buoyed by increased household formation, job gains and attractive mortgage rates. This uptick in demand should translate into increased housing production throughout 2016 and into next year.”

The median sales price of new houses sold in July 2016 was $294,600, down 0.5% from a year ago; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000. This represents a supply of 4.3 months at the current sales rate, the smallest inventory since June 2013 and down from last month’s level of 4.9 months. Although the July figure confounded the expectations of economists, it’s still less than half the annualized pace of 1.39 million units for new homes set in 2005.