Housing Surprise: New-Home Sales Increase

New-home sales ticked up 4.1 percent over the prior month during August, according to the latest data from the Commerce Department.

That's right. No need to clean your glasses off -- home sales increased in what has been a slumping housing market.

Builders were able to sell new houses at a seasonally adjusted annual pace of 1.05 million units, slightly higher that last year's pace.

That increase was in line with expectations.

The median sales price for August was $237,000, a very slight uptick (+0.3 percent, or $800) from the previous month.

This change in price is statistically insignificant and is effectively unchanged.

Isn't the Housing Market Going Down?

It is, in fact, a slowing housing market.

Compared to the sales pace from a year ago, builders are having real problems moving new construction.

Despite the monthly increase, the overall, year-over-year pace is down 17.4 percent compared to last August.

Another factor at play: This report is notoriously jumpy.

If you look at the statistical notes in the release, you'll see that today's number comes with a margin of error of 15.5 percent.

That means it's possible that real-world sales might have ranged from a drop of 11.4 percent to an increase of 19.6 percent.

The previous three months all saw downward revisions today, suggesting that the margin of error is more likely to the downside.

Today's report is very different from Monday's existing-home sales report, which showed that sales of pre-owned homes had fallen 0.5 percent in August.

Why the difference?

One thing to keep in mind when you're looking at new-home sales is that there's most often a corporation behind the sale -- not an individual owner and Realtor, as is the case with pre-owned homes.

Big builders can offer incentives to move houses in a market where buyers are looking for a good deal.

Because of this, lots of people are getting extra incentives added to their closings -- crown moldings, upgraded kitchens, or a $10,000 gift card for appliances.

There are ways these companies can "goose" the new-homes market, but those techniques don't generally affect the existing-home market.

With existing homes, the market is basically guided by price.

So What's Really Happening?

Taking a look at the overall residential real estate market, August will be seen as tepid, at best.

Combined new- and existing-homes sales increased one-tenth of a percent from July's level.

Overall, prices for the average home sold during August dropped as sellers competed to attract buyers in a market crowded with supply.