Economists wary as new home sales hit 3-year high 

New single-family home sales jumped unexpectedly last month, but some data suggests this may be a one-time blip rather than a sustainable trend.

Sales of new homes jumped 20.5% in August compared to July and 15.4% compared to a year ago, according to U.S. Census Bureau data released on Sept. 24. The data focused on contract signings, meaning it doesn't factor in cancellations.

The uptick in new home sales resulted in an annualized rate of 800,000 — well above the consensus expectations of 650,000 and the fastest pace since early 2022, before interest rates spiked.

The median new home sale price was $413,500 in August, up 1.9% compared to a year ago. This rise is also out of step with recent trends, which have pointed to slowing home price growth.

According to the National Association of Home Builders (NAHB), 1 in 5 new homes were priced below $300,000 in August — the highest level in nearly a year — while nearly 1 in 3 were priced above $500,000.

What may have spurred the boost: Mortgage rates steadily declined last month in anticipation of the Federal Reserve's decision to cut short-term interest rates. Meanwhile, builders were willing to make concessions to finalize deals.

"Another reason the New Home sector got a bump could be the trend toward the construction of smaller homes. With more people wanting to downsize, smaller homes are becoming more attractive," said Lisa Sturtevant, chief economist at Bright MLS. "Builders focusing on smaller and more affordable homes will likely see the strongest demand."

Many economists are surprised — and skeptical: Some real estate economists aren't giving much credence to the latest new home sales data until they see more evidence of a rebound. Other economic indicators — including low builder sentiment, sluggish housing starts and few new building permits — suggest that the new home market is not revving up.

"The Census Bureau's estimate of new home sales is often volatile from month to month and is subject to significant revisions," wrote Jing Fu, the NAHB's senior director of forecasting and analysis.

Nancy Vanden Houten, lead economist at Oxford Economics, also sees the Census Bureau's Sept. 24 report as a likely blip. The August sales data "is at odds with other indicators and likely overstates any improvement in housing activity," Vanden Houten said in an email. "However, we do expect home sales to improve as mortgage rates decline and the labor market regains its footing."

Inventory drops: The jump in sales also knocked down new home inventory. The supply of new homes at the end of August was 7.4 months, down from 9 months in July and 8.2 months a year ago, according to Census Bureau data.

This decline will impact overall inventory, which has slowed in recent weeks as sellers who are unhappy with the current weak demand pull listings off the market.