Sales of new homes in the US surged by more than expected last month as builders ramped up discounts to lure buyers sitting on the sidelines.

New single family home sales rose 20.5% in August to an annualised rate of 800,000 units, the US Census Bureau reported on Wednesday. It was the fastest pace since early 2022 and well above economists' forecasts, signalling a burst of activity in a frozen housing market.

Analysts said the uptick was propelled by price discounts and and other sales incentives from builders, who are grappling with an oversupply of newly-built homes for sale.

Easing borrowing costs, ahead of the Federal Reserve's interest rate cut, also supported the surge, economists noted.

But new homes only account for about 14% of the US home sales. The housing market, more broadly, remains persistently frozen as affordability constraints shut out prospective buyers.

Nancy Vanden Houten, a lead US economist at Oxford Economics, cautioned that the jump in new home sales in August "likely overstates any improvement in housing activity". New home sales tend to be volatile month-to-month, she said.

"Take the gain with a huge grain of salt," economists at Wells Fargo wrote in a research note.

"New home sales are prone to heavy revisions. A flat-ish trend in sales, similar to what has been evident all year, seems more likely," they added.

In a report from the National Association of Home Builders and Wells Fargo this month, 39% of homebuilders said they had cut prices - the highest since the coronavirus pandemic.Other incentives might include helping buyers secure a lower mortgage rate or offering to pay some closing costs.

At the same time, mortgage rates started to inch down last month, as financial markets priced in expectations for an interest rate cut from the US central bank.

Lower borrowing costs contributed to the spike in new home sales, Thomas Ryan, a North America economist at Capital Economics, said in a research note.

The average rate on the 30-year mortgage, the most popular home loan in the US, has fallen even further this month. It dropped to 6.26% last week, according to Freddie Mac, an ongoing decline that could prompt even more new home sales activity in the coming months, Mr Ryan said.

Chen Zhao, the head of economics research at Redfin, said new home sales - which are based on contract signings, rather than completed sales - might be an early indicator of reaction to lower mortgage rates. But the data tends to be "noisy", she said, and "you do want to see another month of data before you really hang your hat on this".

Mortgage rates still remain roughly double what many homeowners secured during the pandemic. A weakening labour market, combined with persistent home affordability challenges, could keep the housing market in a state of paralysis.

"There is pent-up demand in housing, but affordability remains out of reach for many first-time homeowners," said Eric Teal, chief investment officer at Comerica Wealth Management.