New home sales shot up in July as the housing market finally felt the effects of lower mortgage rates, which had remained stubbornly prohibitive for quite some time.

New home sales increased 10.6% from June to 739,000, according to a Friday report from the Census Bureau. The number of new home sales is 5.6% higher than it was in July of last year.

The median sales price for a new home was $429,800 in July.

As of Friday morning, the average rate on a 30-year, fixed-rate mortgage was at 6.48%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a peak last year of above 8% and is the lowest that mortgage rates have been since May 2023. Home sales also affect the broader economy.

On Thursday, it was revealed that existing home sales broke a four-month losing streak and ticked up amid the lower mortgage rates.

Existing home sales in July rose 1.3% to a seasonally adjusted annual rate of 3.95 million, the National Association of Realtors reported on Thursday. Still, sales of existing homes are down 2.5% compared to a year ago.

Economists are hoping that the falling mortgage rates, coupled with more housing inventory, will eventually translate to the housing market heating up.

Many people have been holding on to their existing homes and mortgages and waiting to sell until mortgage rates are lower, creating a shortage of existing homes for sale.

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At the peak of the pandemic, the Federal Reserve cut its interest rate target to near zero, and mortgage rates plunged to very low levels. In early 2021, people were locking in sub-3% mortgages — the lowest level in postwar modern history.

Mortgage rates will likely fall further in the coming months as the Fed begins paring back its interest rate target, which shoot give the struggling housing market a bit of a boost and cause people holding onto their homes to reenter the market.