WASHINGTON, Aug 24 (Reuters) - Sales of new U.S. single-family homes increased in July after three straight monthly declines, but housing market momentum is slowing as surging housing prices amid tight supply sideline some first-time buyers from the market. Though the report from the Commerce Department on Tuesday showed a big increase in new housing inventory, the jump was driven by a record rise in homes that are yet to be built. Builders are taking longer to complete houses, hobbled by expensive raw materials as well as scarce land and workers. "While demand for new homes remains strong, high prices and backlogs in construction will temper sales in the months ahead," said Nancy Vanden Houten, a U.S. economist at Oxford Economics in New York. "Homebuilders are reportedly turning away buyers as they attempt to reduce the backlog of sales." New home sales rose 1.0% to a seasonally adjusted annual rate of 708,000 units last month. June"s sales pace was revised up to 701,000 units from the previously reported 676,000 units. Economists polled by Reuters had forecast new home sales, which account for 10.6% of U.S. home sales, increasing to a rate of 700,000 units in July. Sales dropped 27.2% on a year-on-year basis in July. The median new house price soared 18.4% from a year earlier to a record $390,500 in July. Sales jumped to a rate of 993,000 units in January, the highest since the end of 2006, driven by historically low mortgage rates and a desire for spacious accommodations as Americans worked from home and took online classes during the COVID-19 pandemic. The market for new homes is being driven by an acute shortage of previously owned houses. But builders have struggled to fully take advantage of the supply squeeze, hampered by soaring lumber prices as well as shortages of other building materials and household appliances. Though lumber prices have dropped sharply from May"s record highs, they remain above their pre-pandemic levels. Reports this month showed single-family building permits fell in July, while confidence among homebuilders hit a 13-month low in August. A report on Monday showed sales of previously owned homes rose modestly in July. read more Stocks on Wall Street were trading higher, with the S&P 500 (.SPX) and Nasdaq (.IXIC) indexes hitting record highs, boosted by oil and travel-related shares. The dollar (.DXY) was flat against a basket of currencies. U.S. Treasury prices were mostly lower. LOWER-COST STATES Last month"s gain in new home sales was driven by a 1.3% rise in the populous South and a 14.4% jump in the West. Sales plunged 24.1% in the Northeast and decreased 20.2% in the Midwest. "The pandemic has accelerated the migration to suburban markets and metro areas in lower-cost states such as Arizona, Utah, Texas and Florida," said Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina. "By contrast, new home sales weakened in areas where population growth has slowed, in part due to an outflow of residents seeking more affordable real estate, lower taxes and other lifestyle advantages." New home sales were concentrated in the $200,000-$749,000 price range. Sales in the under-$200,000 price bracket, the sought-after segment of the market, accounted for a mere 1% of transactions. "Affordability is becoming an increasing issue in the new-home market," said Bernard Yaros, and economist at Moody"s Analytics in West Chester, Pennsylvania. "Single-family sales prices are up 20% from their pre-pandemic level, which is a touch lower than the run-up in sales prices in the existing-home market but still enough to deter potential homebuyers." There were 367,000 new homes on the market in July, the highest since November 2008 and up from 348,000 in June. Homes yet to be built accounted for record 28.6% of supply. Completed houses made up only 9.8% of supply. At July"s sales pace it would take 6.2 months to clear the supply of houses on the market, up from 6.0 months in June. About 75% of homes sold last month were either under construction or yet to be built. "We expect sales to move upward as the year continues, as sufficient demand is present, but the pace at which acceleration occurs will likely be determined by the speed at which homebuilders can clear their current backlogs and overcome material availability and other supply constraints," said Mark Palim, deputy chief economist at Fannie Mae in Washington.