Single-family home sales declined by 13.4 percent in July to a 394,000-unit annual rate. Economists expected some summer softening after sales maintained an average pace of about 448,000 units over the first six months of 2013, though few predicted such a sizable monthly slip. Despite the decline, the sales rate has improved by 6.8 percent since July 2012.

Sales of new single-family homes fell 13.4 percent in July, raising questions about the housing market's recovery with sizeable drops in every region.

New-home sales, seasonally adjusted, fell to an annual rate of 394,000 units in July, the lowest rate since October, the U.S. Department of Commerce reported August 23.

Economists had expected some pull back after sales gains in recent months, but few predicted such a significant decline. Despite the month-to-month instability, long-term trends point to continuing growth, as new-home sales in July were up 6.8 percent year-over-year.

By region, monthly sales fell 16.1 percent in the West, 13.4 percent in the South, 12.9 percent in the Midwest and 5.7 percent in the Northeast.

Rising mortgage rates may be behind July's drop. Since early May, the average rate for the 30-year fixed-rate mortgage has increased more than one percentage point.

The Commerce Department report also showed that the median price of new homes fell to $257,200 in July, the lowest price since March, but was up 8.3 percent from July 2012. The supply of new homes on the U.S. market in July jumped to 5.2 months at the current sales pace "?u the highest since January 2012 "?u from 4.3 months in June.