Figures released by the US Commerce Department on Tuesday showed that sales of new homes in the US were at an annual rate of 675,000 in August, down 8.7 per cent from a revised 739,000 in the previous month.
The figure, which is seasonally adjusted, refers to how many homes would be built in a full year if builders constructed homes at the same rate every month.
The increase was below Wall Street's expectations. Economists had forecast new home sales to total 695,000 in August.
New home sales were dragged down by a sharp drop in sales in the Midwest.
July's numbers were revised sharply to 739,000 homes, compared to an initial estimate of a 4.4% increase.
New home sales data fluctuate from month to month and are often revised.
Key Details The median sales price of new homes fell to $430,300 in August from $436,700 the previous month.
Between July and August, the supply of new homes for sale increased by 11.4%, equivalent to a 7.8-month supply.
Regionally, the Northeast led the nation in new home sales, up 6.7 per cent. All other regions of the U.S. experienced declines in new home sales, with the Midwest experiencing the largest decline at 17.2 percent.
Overall, new home sales are up 5.8 percent compared to last year.
Homebuilders have been the biggest beneficiaries of the lack of resale inventory over the past few months, but with high mortgage rates and tighter credit conditions, even they are beginning to feel uncertain about their future.
In a confidence survey, builders expressed nervousness about the strength of homebuyer demand. the confidence index fell to a five-month low in September.
Rates on 30-year mortgages were at 7.51 percent as of Monday afternoon and are edging higher, according to Mortgage News Daily.
New home sales may have begun to react to the recent further increases in mortgage rates, which could push new home sales prices lower in the coming months," Giampiero Fuentes, an economist at Raymond James, wrote in a report. He also noted that home inventories are also increasing.
Stocks fell in early trading Tuesday. the 10-year Treasury note yielded more than 4.5 percent.
Shares of homebuilders including D.R. Horton, Inc., Lennar Corp., PulteGroup Inc. and Toll Brothers Inc. fell in early trading.
