WASHINGTON (AP) — Sales of new U.S. homes fell a steep 12.8% in July, but the drop came after revisions to June sales showed the sales highest growth in 12 years.

The Commerce Department said Friday that new homes sold at a seasonally adjusted annual rate of 635,000 units. That's down from a sharply revised upward rate of 728,000 in June. So far this year, sales have risen 4.1%, a sign that buyers are beginning to respond to lower mortgage rates.

The volatility in home sales reflects broader uncertainty in the housing market. Buyers have been eager to take advantage of wage growth and historic...