Contract signings on new single-family homes increased 10.6% last month to a 739,000 annual rate, reflecting gains in all four major regions, government data Friday showed. The pace beat all estimates in a Bloomberg survey of economists.

The pickup in sales suggests the combination of lower mortgage rates and generous sales incentives by builders is starting to take root. Prospective buyers are finding more options in the new-home market as the supply of existing homes is still very constrained. Asking prices are also more competitive compared to the resale market.

Mortgage rates have dipped to 6.5% from a 2024 peak of nearly 7.3% in April, and they're expected to fall further as the Federal Reserve gets ready to begin lowering interest rates next month. Chair Jerome Powell said at the central bank's annual symposium in Jackson Hole, Wyoming, on Friday that "the time has come" to cut rates.

The pickup in sales allowed builders to make a dent in inventory last month, which fell to the lowest level since the start of the year. Nonetheless, the 462,000 homes for sale is still near the highest since 2008.

At the current sales rate, that represents 7.5 months of supply, the lowest since September but above pre-pandemic levels. Elevated inventory is helping to keep a lid on prices: the median sale price of a new home in July decreased 1.4% to $429,800 from a year ago. Prices have fallen on an annual basis in all but one month this year.

While inventory is slowly creeping up in the resale market as some homeowners part ways with their pandemic-era low mortgage rates, that supply is still historically low and keeping homes expensive. The median price of previously owned homes set a record last month for any July going back two decades, according to separate data out Thursday.

Despite weaker sales across the industry recently, the nation's biggest home builders have seen strong profits, luring buyers by cutting prices and buying down customers' mortgage rates.

Shares of Toll Brothers Inc. rose earlier this week after the luxury builder reported that deliveries will be at the high end of its full-year forecast. The broader industry is performing well too, with an exchange-traded fund of builders up 42% over the past year compared to a 27% climb in the S&P 500.

By region, sales increased in the West at the fastest pace since February 2022. Contact signings in the Midwest were the strongest in three years.

New-home sales are seen as a more timely measurement than purchases of previously-owned homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90% confidence that the change in new-home sales ranged from a 5.9% decline to a 27.1% gain.