US new home sales rise at fastest pace in three years as builders offer discounts
August's 20.5% jump to an annualized 800,000 units follows price cuts and easing borrowing costs, but economists caution on volatility and affordability.
New single-family home sales rose 20.5% in August to an annualized rate of 800,000 units, the U.S. Census Bureau said Wednesday. It was the fastest pace since early 2022 and well above economists’ forecasts, signaling a burst of activity in a housing market that has largely been frozen. The gain came as builders offered steep discounts and other incentives to attract buyers who have sat on the sidelines, while easing borrowing costs supported the move ahead of expectations for a Federal Reserve rate cut.
Analysts attributed the jump to price discounts and other incentives from builders who are grappling with an oversupply of newly built homes. Easing borrowing costs ahead of the Fed's anticipated rate cut also supported the surge. The 30-year fixed mortgage rate has trended lower, with Freddie Mac reporting it at 6.26% last week, a level that could prompt further demand if it persists.
However, new homes account for only about 14% of total U.S. home sales. The broader housing market remains largely frozen as affordability constraints keep many buyers on the sidelines. "The jump in August is likely to overstate any sustained improvement in housing activity," said Nancy Vanden Houten, lead US economist at Oxford Economics. Economists at Wells Fargo cautioned that "new home sales are prone to heavy revisions" and that "a flat-ish trend in sales seems more likely."
In a separate report from the National Association of Home Builders and Wells Fargo this month, 39% of homebuilders said they had cut prices—the highest share since the pandemic. Some incentives extend beyond price cuts, with builders offering to help buyers secure lower mortgage rates or to pay closing costs.
Mortgage rates began to ease last month as markets priced in expectations for a Federal Reserve rate cut, a development economists say helped push August's data higher. The average 30-year mortgage rate fell to 6.26% last week, according to Freddie Mac, and has continued to drift downward into September. "Lower borrowing costs could spark more new-home activity in the coming months," said Thomas Ryan, North America economist at Capital Economics.
Chen Zhao, head of economics research at Redfin, noted that new home sales are based on contract signings rather than closings, making the data noisy. "You do want to see another month of data before you hang your hat on this," Zhao said.
Mortgage rates still remain roughly double what many homeowners paid during the pandemic. Eric Teal, chief investment officer at Comerica Wealth Management, said there is pent-up demand in housing, but affordability remains out of reach for many first-time buyers.
Economists caution not to overinterpret the August data. While the jump points to renewed activity in a market that has struggled with affordability, several analysts warned that sales can swing sharply from month to month and that further confirmation is needed before drawing broad conclusions about the housing market's trajectory.