New home sales unexpectedly increased in August from the month before, but the decline in median and average prices suggests that home builders are open for negotiation as the overall housing market cools.
Sales of newly constructed homes came in at a seasonally adjusted annual rate of 685,000, up 28.8% from July's revised pace of 532,000 and 0.1% below the year ago estimate of 686,000, according to a report from the Department of Housing and Urban Development and the Census Bureau.
The figures far exceeded the Bloomberg consensus estimate of 500,000 in annualized new home sales.
Still, the median price for a new home dropped 6.3% month over month to $436,800 from a revised $466,300 in July. The average price also fell by 6.3% to $521,800 in August from $556,700.
The figures offer a mixed picture for the housing market after a host of recent data showed slowing sales and cooling prices, an about-face from just the start of the year.
"The leap in new home sales is either unbelievable – the margin of error in these numbers is massive, +/-18.3% – or unsustainable, if it reflects a rush of purchases by people who locked in rates as they began to surge again," Ian Shepherdson, Chief Economist, at Pantheon Macroeconomics, wrote in a statement.
"Either way, sales are far above the level implied by the mortgage applications numbers and that can’t last. The trend in sales is still downwards, inventory is far too high – the number of new homes for sale is now at the highest since March 2008 – and prices are under pressure," Shepherdson added.
The decline in prices in August may reflect how many builders are offering incentives to move what homes they have for sale as jittery homebuyers contend with rapidly rising mortgage rates. Tight inventory has been a persistent problem and behind rapidly higher price growth.
Twenty-four percent of home builders reported reducing their price in September, up from 19% in August, according to the National Association of Home Builders, while half said they offered mortgage rate buy-downs and free amenities, among other inducements to close sales.
That's led to deteriorating confidence in the industry, with builders' sentiment falling for the ninth consecutive month in September to a reading of 46. A number below 50 is considered negative.
As a result, builders are pulling back on new construction. Permitting for single-family homes plummeted in August. Applications to build declined 10% to an annualized rate of 1.517 million units in August from 1.685 million in July. The consensus expectation by Econoday was 1.621 million.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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