New-home sales surged in August to their strongest pace in more than three years, as aggressive price cuts and incentives by builders successfully drew buyers back into a housing market that had been stalled by high mortgage rates and elevated prices.
Sales of new single-family homes increased to a seasonally adjusted annual rate of 800,000 units, a 20.5 percent increase, the Commerce Department and Housing and Urban Development Department said Wednesday.
The pace was well above the 653,000 rate economists had forecast and marked the fastest selling pace since early 2022.
The unexpected jump suggests that homebuilders’ strategy of offering steep discounts and sales incentives is working to revive demand in a market where many potential buyers had been sidelined by affordability concerns. The robust sales pace also helped reduce the inventory overhang that had been weighing on the sector.
The sales surge was broad-based, with gains across all major regions. The South, which accounts for the largest share of new-home sales, saw purchases jump 24.7 percent to 530,000 units. The Northeast posted the largest percentage gain at 72.2 percent, though from a much smaller base.
Builder incentives have reached post-pandemic highs as companies seek to move inventory. Some 39 percent of builders reported cutting prices in September, according to a survey by the National Association of Home Builders and Wells Fargo—the highest level since the early days of the Covid-19 pandemic.
The sales increase helped reduce the supply of unsold new homes to 490,000 units at the end of August, the lowest level this year. That translates to 7.4 months of supply at the current sales rate, down sharply from 9.0 months in July. While still above the 4-to-6 month range considered normal, the improvement suggests the market is moving toward better balance.
The median price of a new home sold in August was $413,500, up 4.7 percent from July but only 1.9 percent higher than a year earlier. The average sales price of $534,100 was up 11.7 percent from the previous month and 12.3 percent higher than August 2024, suggesting strength at higher price points.
New-home sales reflect contract signings rather than closings, making them a more timely indicator of buyer sentiment than existing-home sales. The August figures likely captured the beginning of a recent decline in mortgage rates, which have since fallen to their lowest levels in more than a year.
The government also revised sales figures for the previous three months higher, suggesting the housing recovery has been building momentum. Sales data is subject to large revisions due to the survey methodology and relatively small sample size.
Despite the improved August numbers, the housing market continues to face headwinds from mortgage rates that remain elevated by historical standards and home prices that have priced out many potential buyers. The average rate on a 30-year fixed mortgage was about 6.2 percent in August, down from peaks above 7 percent last year but still well above pre-pandemic levels.
Shares of major homebuilders rose in early trading Wednesday. Lennar gained 1.99 percent, D.R. Horton rose about one percent. and PulteGroup climbed 1.65 percent.
The new-home market represents a small fraction of overall housing activity but is closely watched as an indicator of future labor intensive construction activity and broader housing demand. What’s more, rising new home sales often have coattails, boosting furniture, technology, and appliance sales. New homes accounted for about 15 percent of home sales in recent months.
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