New home sales hit a 3-year high in August as builders leaned on incentives — is the market showing signs of life? Here’s what you need to know

What makes this jump surprising is that buyers signed those contracts while mortgage rates hovered around 6.6% — higher than they are today. Rates dipped in September, when the Federal Reserve cut its lending rate.

The median price of a newly built home sold in August was $413,500, up 1.9% year over year.

Still, many builders are offering discounts and incentives to lure buyers.

In fact, 38% of builders reported cutting prices in October, which is close to the highest share since the pandemic, according to the National Association of Home Builders. [1]

“Meanwhile, the average price reduction rose to 6% in October after averaging 5% for several months previously. The last time builders reduced prices by 6% was a year ago in October 2024. The use of sales incentives was 65% in October, unchanged from September,” said the report.

Is the market revving up?

Analysts warn against reading too much into the numbers. Robert Dietz, chief economist at the National Association of Home Builders, said revisions could scale back the perceived August gain. The September new residential sales report will be out October 24.

“Always important to remember the margin of error for new home sales is large. We’ll need to wait for revisions next month and the September data point to see if this is smoothed out,” Dietz told CNBC. [2]

Ivy Zelman of Zelman & Associates, a homebuilder analyst company, told CNBC the higher numbers were “directionally right, but the magnitude was way too high.”

Zelman's own survey, which has a larger sample size than the U.S. Census data, showed a sales increase of just 6% year over year.

There's one likely reason for why sales are up despite high rates: homebuilders have leaned heavily on incentives, which may include covering closing costs or offering temporary mortgage rate buydowns.

“... 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,” wrote Peter Boockvar, chief investment officer of One Point BFG Wealth Partner, according to CNBC. “And we’ll, of course, see the impact of lower mortgage rates when the September figure comes out, but keep in mind, if mortgage rates continue down ... builders will then reduce the pace at which they are implementing incentives and thus possibly offsetting the benefit of lower mortgage rates for new homes.”

Incentives probably made new builds more attractive than existing homes, especially with inventory tightening. August supply fell to 7.4 months at the current sales rate from nine months in July, an 18% drop. Beyond potential incentives, new homes often come with energy-efficient features, modern layouts, and fewer immediate repair costs.

That said, they’re still far from cheap, and new tariffs on imported lumber, timber, furniture and cabinets could raise prices even further. Nationwide, housing supply is falling while demand is sluggish, according to Redfin. [3] Builders themselves pulled back on new permits in August, according to the NAHB. [4]