Sales of existing homes are strengthening and prices continue to rise, stoking confidence in the housing market's recovery.
Resales jumped 10.4% compared with the same month last year. Economists at the association believe sales could reach 5 million next year.
The West, where inventory is in short supply, was the only region where sales didn't increase month to month. But compared with last year, contracts that closed in the region were up 5.9% and the median price of existing homes soared 24.5% to $238,600, according to the trade group.
Nationwide, prices were on a tear, rising 9.4% from a year ago to $187,300 last month. The increase is the largest since a 10.2% boost in January 2006.
Demand is stronger due to low mortgage interest rates and rising rents, according to Lawrence Yun, the group's chief economist.
But "the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions," Yun said in a statement.
Though first-time buyers made up more than a third of resale clients, in normal housing conditions they'd constitute 40%. Many are still being pushed out by investors making all-cash offers, even though the ranks of such buyers are shrinking .
Distressed homes, which include foreclosures and short sales, made up 24% of sales in July, down from a quarter the previous month and nearly 30% a year earlier.
The median price of a single-family home was $188,100, up 9.6% from the same period in 2011. Sales of such properties rose 9.9% over the same period to an annual rate of 3.98 million.