New home sales blew past expectations in August, hitting the fastest pace in more than three years.
Sales of new single-family homes rose 20.5 percent to a seasonally adjusted annual rate of 800,000 units last month, government estimates showed Wednesday. The August rate was up 15 percent from the year prior and the highest level since January 2022.
The gain was surprising, given that elevated mortgage rates and high prices have kept many potential buyers on the sidelines. Economists surveyed by Reuters had projected a slowdown to 650,000 units.
Two main factors appear to be behind the surge: slightly lower borrowing costs and aggressive sales incentives from builders.
According to Freddie Mac, the average 30-year fixed mortgage rate slipped to 6.56 percent by late August from 6.72 percent at the end of July. Rates have since fallen further to 6.26 percent after the Federal Reserve cut interest rates last week.
The National Association of Home Builders (NAHB) attributed August’s “surprisingly large jump” to the “modest drop in mortgage rates” in a statement on Wednesday.
“If this momentum continues, we expect new home sales to gain traction as more buyers reenter the market in the final quarter of 2025,” said Jing Fu, NAHB senior director of forecasting and analysis.
Still, there’s no guarantee mortgage rates will keep sliding, since markets had already priced in the Fed’s move.
Builders also sweetened deals to attract hesitant buyers. In August, 66 percent reported using sales incentives like discounts or mortgage rate buydowns, the highest share in the post-COVID period, according to the NAHB/Wells Fargo Housing Market Index.
“Builders remain more willing than individual sellers to adjust prices, but even with these concessions, the market is still gauging how much demand can be coaxed back,” Realtor.com Senior Economist Anthony Smith said in a statement.
Even with incentives, prices ticked up. The median price of a new home sold in August was $413,500, up 4.7 percent from July and 1.9 percent higher than a year earlier. Newly built homes have typically sold at a premium to existing homes, but that trend has flipped recently, making new construction more competitive.
The South accounted for the bulk of sales, with a 530,000-unit annual rate. The Northeast posted the sharpest percentage gain — up 72 percent from July — but activity there remained comparatively low at just 31,000 units. Sales also rose 25 percent in the South, 13 percent in the Midwest and 6 percent in the West.
Wednesday’s new sales figures are preliminary and could be revised in the months ahead. A new home sale is counted when a contract is signed or a deposit accepted, regardless of construction stage, the NAHB noted.
The National Association of Realtors will release August existing home sales in a separate report Thursday. Existing homes typically make up more than 90 percent of total home sales.
