New Home Sales Shake Off Home Builders’ Blues. Incentives Might Be Working.

New home sales surged in August to a seasonally adjusted annual rate of 800,000, census data showed Wednesday. (FREDERIC J. BROWN/AFP via Getty Images)

Key Points

About This Summary

• New home sales increased to a seasonally adjusted annual rate of 800,000 in August, up from 664,000 in July.
• The rise in August new home sales is attributed to elevated home builder incentives and lower mortgage rates.
• Despite the sales surge, builder confidence remains low, with 39% reducing prices and 65% offering sales incentives.

Home builder stocks perked up Wednesday on a sign of a home sales rebound.

Buyer incentives and lower mortgage rates could have lured buyers back into the market in August, new census data suggest—though investors should digest the numbers with several grains of salt.

During a slow time for home sales, many builders have been offering buyers incentives—such as paying to lower a buyer’s mortgage rate free upgrades—to contend with higher costs. Signs that incentive levels—and their hit on builder margins—are leveling out have been few and far between.

New home sales surged in August to a seasonally adjusted annual rate of 800,000, compared with 664,000 in July, census data showed Wednesday. It was the fastest rate of sales since January 2022.

“I have to believe that the elevated level of home builder incentives was the main catalyst for the large upside surprise to new home sales,” Peter Boockvar, the chief investment officer at One Point BFG Wealth Partners, wrote in his independent newsletter.

The rise in home sales is a positive for builders navigating a challenging market. Mortgage rates sunk in the run-up to the Federal Reserve’s September rate-setting meeting, but have since risen off their lows to 6.37% as of Wednesday, according to Mortgage News Daily. That’s still lower than the roughly 7% where rates began the year, but about a quarter percentage point higher than their September low.

Builder confidence, meanwhile, remained depressed in September, with 39% of those surveyed by the National Association of Home Builders reducing prices and 65% offering sales incentives.

August’s new home sales reading is an indication that buyers are back in the market—though the data come with issues that make it a less reliable indicator than other measures. The data are frequently revised and three months of data are needed to establish a trend, the Census Bureau says in its explanatory notes.

“We have often repeated the mantra that new home sales are poorly measured, subject to enormous volatility, and are revision prone,” John Ryding and Conrad DeQuadros, Brean Capital’s chief economic advisor and senior economic advisor, respectively, wrote in a report, noting that home builder confidence remains depressed. “There is, therefore, nothing at this point to indicate that this surge in new home sales is anything other than statistical noise.”

Plus, unlike existing-home sales, which are recorded when a home sale closes, new home sales data track newly constructed homes as they go under contract—meaning the sale could ultimately fall through.

Still, investors will take good news where they can get it. Exchange-traded funds tracking home builder stocks were rising in late morning trading on Wednesday following the report. The iShares U.S. Home Construction exchange-traded fund was up 0.5% during early afternoon trading Wednesday.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com