New U.S. home sales increased by 0.7 per cent in August, official government data shows.

A sign indicating a reduced price is posted in front of a home for sale in East Palo Alto, Calif. After bottoming in 2008, new U.S. home sales increased 0.7 per cent in August. (Paul Sakuma/Associated Press)

The U.S. Commerce Department said Friday sales inched up to a seasonally adjusted annual rate of 429,000 from a downwardly revised 426,000 in July. Economists surveyed by Thomson Reuters had expected a pace of 440,000.

The August increase was the fifth consecutive month-over-month increase and the strongest sales data in 11 months. But total sales were still 4.3 per cent below where they were in the same month last year.

Sales have risen 30 per cent from their January bottom, but are still some 70 per cent below their frothy peak of 2005.

The report was the second disappointing sign for the U.S. housing market in as many days. On Thursday, the National Association of Realtors said sales of previously occupied homes, which make up the bulk of the market, dipped 2.7 per cent last month.

Builders are using significant price cuts to attract buyers and sell stock. The national median sales price for a new home was $195,200 US in August, off 11.7 per cent from $221,000 a year earlier, and 9.5 per cent below July's level of $215,600. It was the largest monthly drop since record-keeping began in 1963.

There were 262,000 new homes for sale at the end of August, down more than three per cent from July and the lowest in nearly 17 years. At the current sales pace, that represents 7.3 months of supply — the smallest amount since early 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance.

Housing data may be set to take a turn for the worse, as some experts say the current market is artificially buoyed by buyers rushing to take advantage of a federal tax credit that covers 10 per cent of a home's price, or up to $8,000 for first-time owners.

Home sales must be completed by the end of November for buyers to qualify. Builders and real estate agents are pressing the U.S. Congress for that credit to be extended.

Sales varied dramatically around the country. The best performance was in the West, where sales rose more than 12 per cent, and the worst was in the Northeast, where sales sank more than 16 per cent. They were unchanged in the South, and down nearly six per cent in the Midwest.

Meanwhile, major builder KB Home announced its third-quarter financial results Friday, posting a smaller loss of $66 million as it reduced costs and said new home orders increased. Those results missed analysts' expectations.

With files from The Associated Press