Sales are on the up, but plenty of challenges lie ahead for the housing market
Sales of newly built single-family homes in the United States climbed sharply in August, reaching their strongest pace in more than three and a half years. Yet analysts warn the surge may not signal a lasting rebound in the housing market, where cooling labor conditions and builder caution could temper momentum.
The Commerce Department reported that purchases of new homes leapt 20.5% to a seasonally adjusted annual rate of 800,000 units, the fastest since January 2022 and the largest monthly gain since August 2022. July’s figures were also revised upward, while June’s sales pace received a similar adjustment. By comparison, economists surveyed by Reuters had expected sales to ease closer to 650,000 units.
Despite the robust showing, experts urged restraint. “There is no obvious driver. I expect that this spike in sales will be largely reversed in coming months,” said Stephen Stanley, chief US economist at Santander US Capital Markets, in comments to Reuters. He noted that average new-home prices actually rose between July and August, challenging the idea that builders had slashed prices to clear inventory.
Regional and market drivers
The data revealed stark geographic variations. Sales in the Northeast surged more than 70%, though that region contributes a small slice of overall activity. The South, which represents the largest share of new construction, saw sales climb nearly 25 percent, while the Midwest posted a 12.7% increase and the West rose by 5.6%.
Even with the August upswing, the broader housing market remains under pressure from higher borrowing costs that slowed residential investment in the first half of the year. Builder sentiment has stayed subdued, reflecting concerns that softer demand could resurface.
Mortgage rates and builder strategy
Mortgage rates have edged down since midsummer, giving some relief to borrowers. Freddie Mac data showed the average 30-year fixed mortgage slipped to 6.26% last week, the lowest in nearly a year and well below its January peak above 7%. The Federal Reserve’s recent quarter-point rate cut — the first in its projected series of reductions for 2025 — has reinforced expectations that financing costs may continue to ease.
Still, the labor market presents a counterweight. Employment growth has slowed, with payroll gains averaging just 29,000 per month in the three months to August, compared with nearly three times that level a year earlier. “Lower mortgage rates should provide some lift to new home sales activity this fall,” Ben Ayers, senior economist at Nationwide, told Reuters, “but builders are preparing for softer sales activity over the next six months with fewer single-family home projects breaking ground and fewer permits authorized.”
Inventory and pricing pressures
After three consecutive months of higher sales, the number of homes available for purchase slipped to 490,000 in August, the lowest since last December. At the current sales pace, that equates to 7.4 months of supply, down from nine months in July. The bulk of available inventory consists of homes still under construction.
The median sales price rose 1.9% from a year earlier to $413,500, with most transactions falling below the $500,000 mark. Builders have turned to price incentives and concessions to move product, though economists caution that continued sales softness may prompt further cuts.
“If, as seems likely, new sales drop back again, then homebuilders likely will respond to this overhang by trimming prices,” Oliver Allen, senior economist at Pantheon Macroeconomics, told Reuters. He added that additional pullbacks in new single-family starts are also likely in the months ahead.
