WASHINGTON Sales of new U.S. single-family homes fell more than expected in August as the rate on the popular 30-year fixed mortgage jumped above 7%, driving potential buyers to the sidelines.

New home sales plunged 8.7% to a seasonally adjusted annual rate of 675,000 units last month, the Commerce Department said on Tuesday. July's sales pace was revised higher to 739,000 units from the previously reported 714,000 units.

Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, falling to a rate of 700,000 units. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales increased 5.8% on a year-on-year basis in August.

Though new home sales remain supported by a dearth of previously owned homes on the market, the resurgence in mortgage rates is reducing affordability for many prospective home buyers.

The rate on the popular 30-year fixed mortgage vaulted above 7% in August and climbed to an average of 7.19% last week, the highest since July 2001, according to data from mortgage finance agency Freddie Mac. Mortgage rates are rising in tandem with U.S. Treasury yields, which have surged on worries that soaring oil prices could hamper the Fed's fight against inflation.

The Federal Reserve last week left its benchmark overnight interest rate unchanged at the 5.25%-5.50% range. The U.S. central bank, however, stiffened its hawkish stance, projecting another hike by year end and monetary policy staying significantly tighter through 2024 than previously expected.

The Fed has raised the policy rate 525 basis points since March 2022. Data last week showed the National Association of Home Builders/Wells Fargo Housing Market Index dropped in September below the break-even mark of 50 for the first time in five months, with the survey's measure of prospective buyers tumbling to the lowest level since February.

In August, new home sales fell in the West, Midwest and the densely populated South. But they rose in the Northeast.

The median new house price in August was $430,300, a 2.3% decline from a year ago. There were 436,000 new homes on the market at the end of last month, up from 431,000 in July. At August's sales pace it would take 7.8 months to clear the supply of houses on the market, up from 7.0 months in July.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)