(Reuters) -Sales of new U.S. single-family homes rose to their highest level in more than a year in July as a drop in mortgage rates boosted demand, offering more evidence that the housing market is recovering.

New home sales jumped 10.6% to a seasonally adjusted annual rate of 739,000 units last month, the highest level since May 2023, the Commerce Department's Census Bureau said on Friday. It was also the sharpest increase in sales since August 2022.

The sales pace for June was revised higher to 668,000 units from a previously reported 617,000 units.

Economists polled by Reuters had forecast new home sales, which account for more than 10% of U.S. home sales, to edge up to a rate of 625,000 units.

New home sales are counted at the signing of a contract. They, however, can be volatile on a month-to-month basis. Sales increased 5.6% on a year-on-year basis in July.

The average rate on a 30-year fixed-rate mortgage was 6.46% this week, the lowest since May 2023, and more than half a percentage point lower than the same time last year, data from mortgage finance agency Freddie Mac showed.

It has eased from a six-month high of 7.22% in early May amid signals from the Federal Reserve that it will deliver a long-awaited interest rate cut in September. That could help to stimulate sales in the future.

Other housing data has been mixed. U.S. existing home sales rose more than expected in July, reversing a four-month decline. However, single-family housing starts dropped to a 16-month low in July, likely weighed down by Hurricane Beryl while permits for future construction also edged down.