Americans appetite for new homes showed no sign of letting up in July, with sales posting another record. The Commerce Department reports new home sales surged 6.5 percent, to an annual rate of 1.14 million units, bolstered by low interest rates and a solid job market.

Mortgage rates may have been a determining factor driving the record increase. Despite Federal Reserve policies of boosting short term rates and worries about possible inflation, mortgage rates have fallen to a point near their 40-year low.

Its one thing to break a record for sales in a month. Its another thing to totally shatter it. That is what happened in July as new home sales skyrocketed. The level of demand is so out of whack with history that it is hard to even comprehend, said Joel Naroff, chief economist at Naroff Economic Advisors.

Sales were 17% above the July 2004 level, which at the time was considered high. Sales surged 36% in the western U.S., while demand was up over 10% in the Northeast. In comparison, sales fell sharply in the Midwest and eased back in the South.

So, what is going on?

Naroff cautions that the robust sales figures are not necessarily good news. There is, he says, a whiff of panic in the air.

People are getting in before prices hit levels that they cannot afford. But there is also an awful lot of speculation going on, Naroff said.

At the same time, the median price fell for the third consecutive month but economists say its not clear what that means. More newly built condos and co-ops may be on the market, which would explain some of the drop.

As for supply, it inched up and is not out of hand, but only if demand remains in the stratosphere, Naroff added.

Still, builders dont seem to have gotten too far ahead of themselves yet. With this latest report, new home sales are on a pace for the year to set a fifth straight record. Based on the first seven months of 2005, homebuilders are projected to sell 1.304 million homes this year. Sales were 1.203 million last year.