Sales of new single-family homes bounced back in August, helping to offset a large decrease in July after borrowers pulled back from higher mortgage rates, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Pending home sales, however, showed signs of backtracking, the National Association of REALTORS® says.

New-home sales rose 7.9 percent in August following July's 14.1 percent decline, a sign that higher interest rates haven't put a long-lasting damper on home-buying activity, says Rick Judson, chairman of the National Association of Home Builders. 

"Consumers are adjusting to the reality of today's higher rates following a period of record-setting lows, and today's sales report provides evidence of that," Judson says. "We expect to see more buyers coming back to the market as the psychological effects of the rate gains continue to wear off — particularly since, even after the recent spike, mortgage rates remain exceptionally favorable on a historic basis."  

August's new-home sales figure, which is at a seasonally adjusted annual rate of 421, 000, is 12.6 percent higher than a year ago. But that's still only about halfway to what most economists consider a sustainable level in a normal economy, notes David Crowe, NAHB’s chief economist. Inventory levels rose for the seventh consecutive month in August, with the number of new homes for sale rising 3.6 percent from July.

Meanwhile, NAR's Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.6 percent in August to 107.7. That's down from a reading of 109.4 in July, but still 5.8 percent above August 2012. An index of 100 is considered an average level of contract activity.

NAR Chief Economist Lawrence Yun said the drop was not unexpected.

"Sharply rising mortgage interest rates in the spring motived buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month," Yun said. “Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead.”

Source: NAHB, NAR, and AP