New home sales logged an unexpected gain in August, jumping 28.8% to a seasonally adjusted annual pace of 685,000 units, according to new estimates from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

The surprising rebound was accompanied by an upward revision to July’s estimate, which was raised by 21,000 units to a pace of 523,000. Year over year, sales of newly constructed homes took a slight step back, decreasing by 0.1%. On a year-to-date basis, sales remain well off the pace of 2021, running 14.1% behind last year.

The August increase was likely fueled by a reduction in mortgage rates during the latter half of July and first half of August, a solid motivator for prospective buyers looking to lock in their purchases before rates began to trend higher again.

Wells Fargo economists Charlie Dougherty and Patrick Barley pointed out that the bounce back is a reminder that people still want to buy homes and worsening affordability is the major factor keeping would-be buyers on the sidelines. There’s some good news for buyers in that prices are softening, with the median price for a new home dropping 6.3% in August to settle at $436,800.

Year over year, that’s a gain of 8% — the smallest such increase since November 2020. But prices remain relatively high as mortgage rates approach 7%.

“The housing market is cooling, but it remains a struggle for potential first-time homebuyers,” said Odeta Kushi, deputy chief economist for First American Financial Corp. “One year ago, 25% of new home sales were priced below $300,000. In August 2022, only 12% of new home sales were priced below $300,000. That’s a dramatic change from the pre-pandemic level in August 2019 of 43%.”

Kushi also noted that the census bureau doesn’t adjust new home sales figures to account for sales contract cancellations, which will artificially inflate the August numbers.

“Today’s report surprised to the upside, but we’re not out of the woods,” she said. “Rising cancellations may have resulted in inflated sales numbers in August, while the decline in the average 30-year, fixed mortgage rate between July and August may have prompted upward pressure on sales.

“Leading indicators, such as permits and builder confidence, indicate ongoing weakness. With mortgage rates now above 6% and ongoing supply-side headwinds for builders, it’s likely the housing market will continue cooling as we head into the fall months.”