Home sales rose 6.5 percent from June to a seasonally adjusted annual rate of 5.39 million sales per year.
June's figure on existing home sales was revised lower from a seasonally adjusted annual rate of 5.08 million to 5.06 million.
Sales for the month are also 17.2 percent higher than July 2012, when the annual rate stood at 4.6 million.
Prices rose 13.7 percent in July from July 2012 to a national median price of $213,500, which makes it 17 consecutive months prices rose from the same month a year earlier.
NAR Chief Economist Lawrence Yun warned that rising interest rates could derail the upward trend in home sales.
"Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines. The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers," Yun said.
Interest rates tracked by the Federal Home Loan Mortgage Corp. rose to an average of 4.37 percent in July from 3.07 in June, said the NAR, which noted interest rates have not risen this high since July 2011.
The trade group said there were 2.28 million existing homes on the market at the end of July, a 5.6 percent increase from the end of June.
The number of homes for sale represents a 5.1 month supply at the current sales pace, a figure that is unchanged from June, NAR said.