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) -- Sales of newly constructed homes plunged in July, even as more inventory hit the market.

According to the census bureau, new home sales dropped 13.4% in July to a seasonally adjusted annual rate of 394,000, from a downwardly revised estimate of 455,000 in June.

Economists polled by


were expecting new home sales to drop to a seasonally adjusted annual rate of 487,000, from the original estimate of 497,000.

New home sales are still up 6.8% from a year earlier, however.

The new home sales report measure the number of newly constructed homes with a committed sale in a month.

Inventory of new homes for sale at the end of July was estimated at 171,000, up from the 161,000 originally reported in June. The inventory represents 5.2 months of supply at the current sales pace, suggesting that the supply situation has eased. In June, there was only 4.3 months' worth of inventory.

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The supply of new homes has been extremely tight, so the increase in inventory is good news and likely helped lower median prices.

The median sales price for new home sales in July was $257,200 down from $258,500 in June; the average sales price was $322,700, up from $302,200 in June.

However, it appears demand for homes may have cooled off, as buyers hit by higher rates have started to draw back from the market.

Reports suggest that homebuyers who have been chasing fewer homes have started to show signs of exhaustion and rising rates have put a crimp in demand.

-- Written by Shanthi Bharatwaj in New York.

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