New U.S. single-family home sales unexpectedly rose recently, reaching their highest level in nearly nine years as demand increased broadly, brightening the housing market outlook.

The Commerce Department reported that new home sales surged 12.4 percent to a seasonally adjusted annual rate of 654,000 units, the highest level since October 2007.

This recent increase, however, likely exaggerates the housing market strength as it has not been matched by robust housing starts. Still, sales were up 31.3 percent from a year ago.

This surprise increase pushed new home sales well above their second-quarter average, pointing to sustained momentum in the market for new homes. Residential construction was a minor drag on economic growth in the second quarter.

Housing market strength, marked by rising home values which are boosting household wealth, is helping to increase consumer spending, cushioning the blow on the economy from a downturn in business spending as well an inventory correction.

Tightening labor market conditions, which are steadily lifting wages, as well as mortgage rates near historic lows are supporting housing. Reports showed ground breaking on single-family housing projects rose to five-month high and sentiment among homebuilders increasing in August.

New home sales are likely benefiting from a chronic shortage of previously owned houses available for sale.

New single-family homes sales soared 40.0 percent in the Northeast and increased 1.2 percent in the Midwest. Sales in the populous South jumped 18.1 percent to their highest level since July 2007. Sales were flat in the West, which has seen a sharp increase in home prices amid tight inventories.

According to the latest data, the inventory of new homes on the market fell 2.9 percent to 233,000 units, the lowest level since November last year. This means builders will need to ramp up construction activity to meet demand.

Currently, it would take 4.3 months to clear the supply of houses on the market, the fewest since June 2013, and down from 4.9 months in from just a month ago.