Sales of new U.S. homes surged 6.5% in July to a record seasonally adjusted annual rate of 1.41 million, the U.S. Commerce Department said today.

The supply of new homes on the market increased 1.8% in July to a record 460,000, which represents a lean 4-month supply at July sales pace. It’s the tightest inventory in relation to sales since October.

Economists were expecting sales to dip slightly to a 1.33 million pace in July.

New home sales are up 27.7% since July 2004.

Reversing a trend toward higher prices, the median sales price fell to $203,800, down 4% in the past year as builders shift toward homes costing less than $250,000 and away from more expensive homes.

It’s the lowest median sales price since December 2003. Half of the homes sold for more than the median and half for less.

On Tuesday, the National Association of Realtors said sales of previously owned homes fell 2.6% to a seasonally adjusted annual rate of 7.16 million in July, the third highest sales pace ever.

Median prices for previously owned homes have risen 14.1% in the past year.