Sales of previously occupied U.S. homes rose in July as homebuyers were encouraged by a modest pullback in mortgage rates, slowing home price growth and the most properties on the market in five years.

Existing home sales rose 2% last month from June to a seasonally adjusted annual rate of 4.01 million units, the National Association of Realtors said Thursday.

Sales edged up 0.8% compared with July last year. The latest sales figure topped the 3.92 million pace economists were expecting, according to FactSet.

Home prices rose on an annual basis for the 25th consecutive month, although the rate of growth continued to slow. The national median sales price inched up just 0.2% in July from a year earlier to $422,400.

"The ever-so-slight improvement in housing affordability is inching up home sales," said Lawrence Yun, NAR's chief economist. "Wage growth is now comfortably outpacing home price growth, and buyers have more choices."

The U.S. housing market has been in a sales slump since 2022, when mortgage rates began climbing from historic lows. Sales of previously occupied U.S. homes sank last year to their lowest level in nearly 30 years.

This year's spring homebuying season, which is traditionally the busiest period of the year for the housing market, was a bust as stubbornly high mortgage rates put off many prospective homebuyers. Affordability remains a dauting challenge for most aspiring homeowners following years of skyrocketing home prices.

The average rate on a 30-year mortgage has remained elevated this year, although last week it dropped to a 10-month low of 6.58%.

Homes purchased last month likely went under contract in May and June, when the average rate ranged from 6.76% to 6.89%. Mortgage rates eased in July, dropping briefly to 6.67%.

As home sales have slowed, the number of unsold homes on the market has been rising.

There were 1.55 million unsold homes at the end of last month, up 0.6% from June and 15.7% from July last year, NAR said. That's the most homes on the market in five years, but still well below the roughly 2 million homes for sale that was typical before the pandemic.

"Now, with more inventory buyers (are) in a much better position to negotiate for better prices," Yun said.

July's month-end inventory translates to a 4.6-month supply at the current sales pace, down from a 4.7-month supply at the end of June and up from 4 months in July last year. Traditionally, a 5- to 6-month supply is considered a balanced market between buyers and sellers.

Homes are also taking longer to sell. Properties typically remained on the market for 28 days last month before selling, up from 24 days in July last year, NAR said.