A modest drop in mortgage rates led to a surprisingly large jump in new home sales in August that could be revised lower next month.

Sales of newly built single-family homes jumped 20.5% higher in August, to a seasonally adjusted annual rate of 800,000 from an upwardly revised reading in July, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales is up 15.4% from a year earlier. The three-month moving average of new home sales was 713,000, an increase from the 656,000 in July. New home sales remain down 1.4% on a year-to-date basis.

“New home sales experienced a significant surge in August, while builder confidence held steady at a low reading in September,” said Buddy Hughes, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Lexington, N.C. “While this month’s figure may be subject to downward revision, we do expect a general improvement in sales over the coming months, supported by the recent decline in mortgage rates.”

“According to Freddie Mac, the average 30-year fixed mortgage rate has declined by 32 basis points over the past four weeks and now sits at 6.26%—its lowest level since early October 2024,” said Jing Fu, NAHB senior director of forecasting and analysis. “This downward trend in rates, combined with the recent Fed interest rate cut, signals a positive outlook for future housing demand. If this momentum continues, we expect new home sales to gain traction as more buyers reenter the market in the final quarter of 2025.”

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the August reading of 800,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory declined for the third straight month to 490,000 residences marketed for sale (of all stages of construction) as of August. This is 1.4% lower than the previous month and 4.0% higher than a year earlier. At the current sales pace, the months’ supply for new homes was 7.4 compared to 8.2 a year ago.

The median new home sale price was $413,500, up 1.9% from a year ago.

New home sales have also been buoyed by home builders use of incentives. Recent NAHB survey data shows 37% of builders reported cutting prices in August and 66% reported using sales incentives.

Regionally, on a year-to-date basis, new home sales are down 22.0% in the Northeast, 3.9% in the Midwest and 7.3% in the West. New home sales are up 3.3% in the South.