New U.S. single-family home sales held near two-year highs in August as prices surged, according to a report today from the Commerce Department.

The median price of a new home increased a record 11.2 percent to $256,900 - this is the highest median price for a new home since March 2007, adding to signs of a slow recovery in the housing market.

Compared with August last year, the median sales price jumped 17 percent, the largest year-over-year rise since December 2004.

The inventory of new homes on the market held near record lows last month. At the August sales pace it would take 4.5 months to clear the houses on the market, unchanged from July.

A six-month supply of home is considered healthy so there could well be a burst in new home building to come.

Existing home sales also rose for the month in most areas, according to a report released yesterday.

New home sales make up a small percentage of the housing market but they have an important ripple effect.

When the home is built, construction jobs are created.

Once the home is sold it generates revenue for the home builder and the Realtor. There is also a need for new appliances like refrigerators, washers and dryers. All of this boosts spending and creates jobs.

It also works the other way, as jobs are added, people have money to buy new homes, creating a circle of positive economic activity.