Buyers capitalizing on lower mortgage rates and homebuilder incentives pushed new U.S. home sales to the highest level in more than three years, but the surprising surge doesn't necessarily mean the sputtering market is on the mend, analysts say.
August sales of new single-family homes totaled a seasonally adjusted annual rate of 800,000, according to a report Wednesday from the U.S. Census Bureau and the Department of Housing and Urban Development. The total, the highest since January 2022, was 15.4% above the August 2024 figure and soared past analyst expectations of 650,000.
"One month of strong sales is encouraging, but it’s not yet a trend," Odeta Kushi, deputy chief economist at financial services firm First American, told Homes.com in an email. "The data can be volatile and we could very well see revisions in the months ahead. Still, any sign of buyer life is welcome news in a market that’s been searching for momentum."
Mortgage rates have been trending down in recent weeks, and the Federal Reserve announced an interest rate cut last week, while also signaling future cuts.
But buyers may not be able to count on as many builder incentives, including mortgage-rate buydowns, in the coming months, noted Nancy Vanden Houten, lead economist at research firm Oxford Economics.
"Homebuilders have been offering price cuts and other incentives to encourage sales, but there are signs some builders are going to cut back on those incentives as profit margins have been squeezed," she said in a statement.
Smaller homes in demand
Another possible explanation for the August bump is the move to build smaller homes, explained Lisa Sturtevant, chief economist at Bright MLS.
"With more people wanting to downsize, smaller homes are becoming more attractive," she said in a statement.
Despite the sales gains, the market is still dealing with an oversupply of completed new homes for sale last seen in 2009, according to Vanden Houten. Builders are likely planning to focus on selling those homes rather than starting new ones, she said.
The median price of a new home hit $413,500 in August, a 1.9% increase from a year ago, the government report showed.
Year to date, new home sales are still off 22% in the Northeast, 3.9% in the Midwest and 7.3% in the West, the National Association of Home Builders said in an analysis of the government data. Sales are up 3.3% in the South.
The trade group defines a new home sale as when a buyer signs a contract or a builder accepts a deposit. The home can be in any stage of construction, from not started to completed.