A surprise boom in the housing market
If you’ve been following the housing market lately, you know the drill: high mortgage rates, expensive homes, and skittish buyers. So, when the U.S. Census reported that new home sales leapt a whopping 20.5% in August from July, even seasoned housing experts did a double take. It was the largest increase since August 2022, propelling sales to their highest level since January 2022.
Even more surprising, this sales boom came at a time when mortgage rates weren’t exactly friendly. The average 30-year fixed mortgage rate hovered around 6.63% in August—hardly what you’d call a bargain. So, what drove this unexpected surge? Let’s unpack the details.
Mortgage rates weren’t the hero
Here’s the surprise: rates didn’t even begin to drop until September, when they hit a three-year low of 6.13% right before the Federal Reserve cut its lending rate. Rates were still high and flat in August. So the sales surge wasn’t buyers responding to lower borrowing costs—it was something else.
Robert Dietz, chief economist at the National Association of Home Builders, admitted the size of the gain was “not what we were expecting.” He also noted that there is a margin of error in new-home sales data, so revisions next month may dampen the incendiary number. But the trend is for surprising strength in the market.
Builder incentives take center stage
So, if rates weren’t it, what got buyers to sign on the dotted line? All signs point to builder incentives as the way to go. From price cuts to mortgage rate buydowns, builders have been pulling out all the stops to land buyers.
A separate builder survey saw 39% of builders lowering prices in September, the highest since the Covid-era housing boom began. It was 37% in August already. With such incentives, many buyers saw a chance to finally move into a new home—despite the higher rates.
One Point BFG Wealth Partner chief investment officer Peter Boockvar wasn’t shy about stating it outright: “The high level of home builder incentives was the primary driver of the big upside surprise.” What else? Discounts and incentives did the trick.
Prices still in the spotlight
Despite all the discounts and promotions, prices didn’t exactly collapse. In fact, the median price of a new home sold in August was $413,500, nearly 2% above last year. That suggests builders are finding a balance: offering sufficient incentives to lure buyers without slashing base prices too deeply.
This trend also explains why some analysts, including Ivy Zelman of Zelman & Associates, think the Census figures overstated the size of the gain. A survey of homebuilders conducted by Zelman herself reported a more modest 6% year-over-year sales increase—welcome, to be sure, but nothing like the 20% spike the Census registered.
Regional variations tell another story
The boom was not nationwide. The sales were the strongest in the Northeast and South. In the Northeast, where new construction in general is limited, even small swings in sales can make the numbers look extreme. The South, for its part, continues to be the engine of U.S. homebuilding, so it’s no surprise that it posted healthy growth.
The West lagged, weighed down by pricier homes, so affordability will be harder in spite of price reductions by builders.
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What’s next?
The August buying binge cut the supply of housing from a nine-month supply in July to just 7.4 months in August—a drop of 18%. That’s a sign that builders sold more homes than expected, even as they curbed new home starts and permits.
Now that mortgage rates eased up in September, industry watchers are holding their breath to determine if the trend holds—or builders slash incentives the moment buyers catch a break on rates. In either scenario, August’s surprise uptick proves that even in an increased-rate environment, the right mix of incentives and demand can still move the needle on housing.
