The Commerce Department reported this morning (August 24) that sales of new single-family homes in July rose 2.8% to a seasonally adjusted annual rate of 870,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. The number surprised Wall Street, which was expecting a 1.1% decline.

Still, sales were down 10.2% from the seasonally adjusted annual rate of 969,000 in July 2006.

The median sales price of new houses sold in July 2007 was $239,500, up 3.8% from $230,600 in June and 0.6% from $238,100 in July 2006. The average sales price was down 1.3% to $304,900 in July from $304,900 in June and down 3.4% to $300,800 from $311,300 in July 2006.

Regionally, July sales were down 24.3% from June in the Northeast, 0.9% in the Midwest, up 0.6% in the South and up 22.4% in the West. On a year-over-year basis, Northeast sales fell 11.7%, Midwest sales fell 18.2%, South sales fell 3.0% and West sales fell 19.6%.

The seasonally adjusted estimate of new houses for sale at the end of July was 533,000, representing a supply of 7.5 months at the current sales rate, which was down 2.6% from 7.7 months in June. The months-supply number peaked at 8.3 in March, 2007.

In a research note to investors, the home building analyst team at Wachovia Securities wroe. "The upside surprise should be considered a modest positive. Additionally, although the magnitude was small, inventory levels, both in absolute numbers and in terms of months' supply moved in the right direction, declining modestly."

That said, the Wachovia team added, "Despite this, we are still concerned that finished inventory remains too high and that over the last 12 months, builders have completed more homes without selling them than they have sold finished inventory. Furthermore, median prices remain high, in our view, although we acknowledge that heavy use of incentives may be distorting the true figure."

The group also pointed out that the Commerce Department data does not take cancellations into account, so the numbers do not accurately reflect the recent turmoil in mortgage markets.