Sales of newly built homes rose a much larger-than-expected 20.5% in August compared with July to the highest level since January 2022, according to the U.S. Census. It is also the largest one-month gain since August 2022. Sales were 15.4% higher than August 2024.
This count is based on people out shopping in August and signing deals, when the average rate on the 30-year fixed mortgage was higher than it is today. That rate started August at 6.63%, according to Mortgage News Daily, and didn’t really move much during the month.
The sharp decline in rates began in September, when it fell to a three-year low of 6.13% the day before the Federal Reserve cut its lending rate, and then moved higher to where it is now at 6.37%.
Given that rates hadn’t fallen yet, it’s curious that August sales jumped so high. Part of the answer may be in the survey itself.
“We were expecting a gain but not that large,” said Robert Dietz, chief economist at the National Association of Home Builders. “Always important to remember the margin of error for new home sales is large. We’ll need to wait for revisions next month and the September data point to see if this is smoothed out.”
Homebuilder analyst Ivy Zelman of Zelman & Associates said the number was “directionally right, but the magnitude was way too high.” She also noted that the Census report has a very small sample size and the big public builders, who together have 60% market share, don’t participate.
Zelman conducts her own survey, which has a higher sample size spanning 15% of homebuilders, and it showed a sales increase of 6% year over year, she said.
While builders have talked a lot about cutting prices and incentives, the median price of a new home sold in August was $413,500, in increase of 1.9% year over year. In a separate survey on builder sentiment from the National Association of Home Builders, 39% of builders reported cutting prices in September, up from 37% in August and the highest percentage in the post-Covid period.
New home sales were strongest in the Northeast, where overall new construction is low, so swings can be large. It was also strong in the South, where homebuilding is busiest. Sales, while higher, were weakest in the West, where prices are highest.
“While a volatile figure each month and always best to smooth out, I have to believe that the elevated level of home builder incentives was the main catalyst for the large upside surprise to new home sales,” wrote Peter Boockvar, chief investment officer of One Point BFG Wealth Partner. “And we’ll, of course, see the impact of lower mortgage rates when the September figure comes out, but keep in mind, if mortgage rates continue down … builders will then reduce the pace at which they are implementing incentives and thus possibly offsetting the benefit of lower mortgage rates for new homes.”
Strong sales took inventory down to a 7.4-month supply in August from a 9-month supply in July, a nearly 18% drop. Single-family housing starts and permits slowed in August both from July and from August of last year. This would seem to indicate that builders expected slower sales.
