US new home sales jump to more than 3-1/2-year high; economists dismiss rise as a fluke

Core Insights - Sales of new U.S. single-family homes increased significantly in August, rising 20.5% to a seasonally adjusted annualized rate of 800,000 units, indicating strong demand despite potential economic headwinds [1][2] - The decline in mortgage rates, with the 30-year mortgage dropping to an 11-month low of 6.26%, has contributed to this surge in new home sales [3] - However, the labor market is showing signs of weakness, with nonfarm payroll gains averaging only 29,000 jobs per month over the last three months, which could limit the sustainability of this sales growth [4] New Home Sales - New home sales accounted for approximately 14% of total U.S. home sales and experienced a year-over-year increase of 15.4% in August [2] - The previous month's sales pace was revised upward from 652,000 to 664,000 units, reflecting a stronger market than initially reported [1] Mortgage Rates - The Federal Reserve's recent decision to cut the benchmark overnight interest rate by 25 basis points to a target range of 4.00%-4.25% is expected to support further declines in mortgage rates [3] - The mortgage rate has decreased from around 7.04% in mid-January to 6.26% in August, indicating a favorable borrowing environment for homebuyers [3] Labor Market Conditions - The labor market has softened, with a significant drop in job creation compared to the previous year, averaging only 29,000 jobs per month versus 82,000 in the same period last year [4]