Expectations of the Federal Reserve beginning the first in a series of rate reductions kept potential home buyers in a holding pattern in August.

Sales of newly built, single-family homes in August fell 4.7% after an unusually strong July, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. August new home sales registered a 716,000 seasonally adjusted annual rate, after an upwardly revised estimate of 751,000 for July. Despite the slip in August, the three-month moving average for new home sales is at its highest level since March of 2022. New home sales are up 4% on a year-to-date basis through August.

“Builder sentiment and future sales expectations are improving as the Federal Reserve begins a credit easing cycle,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “However, due to the mortgage interest lock-in effect, declining interest rates will mean rising existing home inventories and some additional new competition for home builders.”

“While a 7.8 months’ supply may be considered elevated in normal market conditions, there is currently only a 4.1 months’ supply of existing single-family homes on the market,” said NAHB Chief Economist Robert Dietz. “Combined, new and existing total months’ supply remains below historic norms at approximately 4.7, although this measure is expected to increase as more home sellers test the market in the months ahead.”

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the August reading of 716,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory increased 1.7% to 467,000 in August, a 7.8 months’ supply at the current sales pace. Completed, ready to occupy inventory increased to 105,000 homes, which is the highest level since 2009. However, this share makes up only 22% of new home inventory.

Median new home price fell back to $420,600, down 4.6% from a year ago due to builder price incentives amid multidecade highs for housing affordability challenges. The Census data reveals a gain for new home sales priced below $300,000, which made up 18% of new home sales in August compared to 12% a year ago.

Regionally, on a year-to-date basis, new home sales are up in all four regions, rising 2.1% in the Northeast, 21.9% in the Midwest, 0.8% in the South and 4.7% in the West.