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WASHINGTON (Reuters) – Sales of new U.S. single-family homes rebounded more than expected in August, the latest sign that the struggling housing market was starting to get a lift from lower mortgage rates.

FILE PHOTO: A new apartment building housing construction site is seen in Los Angeles, California, U.S. July 30, 2018. REUTERS/Lucy Nicholson

The Commerce Department said on Wednesday new home sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units.

Economists polled by Reuters had forecast new home sales, which account for about 11.5% of housing market sales, increasing 3.5% to a pace of 660,000 units in August.

New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales surged 18.0% from a year ago. The median new house price rose 2.2% to $328,400 in August from a year ago.

The housing market, the most sensitive sector to interest rates, has perked up in recent months in response to a sharp drop in mortgage rates. Reports last week showed housing starts and building permits jumped to a more than 12-year high in August, and home resales rose to the highest level in 17 months.

The 30-year fixed mortgage rate has dropped about 120 basis points from last year’s highs to an average of 3.73%, according to data from mortgage finance agency Freddie Mac.

The Federal Reserve last week cut interest rates for the second time to offset the impact on the economy from a year-long trade war between the United States and China, and slowing global growth. The U.S. central bank lowered rates in July for the first time since 2008.

The recent improvement in housing data has raised optimism that the housing market could be regaining its footing after hitting a soft patch last year. Residential investment has contracted for six straight quarters, the longest such stretch since the 2007-2009 recession.

New home sales in the South, which accounts for the bulk of transactions, advanced 6.0% in August. Sales in the West soared 16.5%. But sales tumbled 5.9% in the Northeast and fell 3.0% in the Midwest.

There were 326,000 new homes on the market last month, the fewest since September 2018 and down 1.2% from July. At August’s sales pace it would take 5.5 months to clear the supply of houses on the market, down from 5.9 months in July.

About 63% of the houses sold last month were either under construction or yet to be built. Sales of new U.S. single-family homes rebounded more than expected in August, the latest sign that the struggling housing market was starting to get a lift from lower mortgage rates.

The Commerce Department said on Wednesday new home sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units.

Economists polled by Reuters had forecast new home sales, which account for about 11.5% of housing market sales, increasing 3.5% to a pace of 660,000 units in August.

New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales surged 18.0% from a year ago. The median new house price rose 2.2% to $328,400 in August from a year ago.

The housing market, the most sensitive sector to interest rates, has perked up in recent months in response to a sharp drop in mortgage rates. Reports last week showed housing starts and building permits jumped to a more than 12-year high in August, and home resales rose to the highest level in 17 months.

The 30-year fixed mortgage rate has dropped about 120 basis points from last year’s highs to an average of 3.73%, according to data from mortgage finance agency Freddie Mac.

The Federal Reserve last week cut interest rates for the second time to offset the impact on the economy from a year-long trade war between the United States and China, and slowing global growth. The U.S. central bank lowered rates in July for the first time since 2008.

The recent improvement in housing data has raised optimism that the housing market could be regaining its footing after hitting a soft patch last year. Residential investment has contracted for six straight quarters, the longest such stretch since the 2007-2009 recession.

New home sales in the South, which accounts for the bulk of transactions, advanced 6.0% in August. Sales in the West soared 16.5%. But sales tumbled 5.9% in the Northeast and fell 3.0% in the Midwest.

There were 326,000 new homes on the market last month, the fewest since September 2018 and down 1.2% from July. At August’s sales pace it would take 5.5 months to clear the supply of houses on the market, down from 5.9 months in July.

About 63% of the houses sold last month were either under construction or yet to be built.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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