Sales of new homes rose in August to the highest level since September 2008, a government report said Friday.New home sales increased 0.7 percent to a 429,000 annual pace in August the Commerce Department reported. The August pace was above the 426,000 annual pace registered in July. New home sales for the month were down 3.4 percent from a year ago.

Sales of new homes were not broad-based across the nation. New home sales were up 12.1 percent in the West, and unchanged in the South, while sales were down 5.8 percent and 16.3 percent in the Midwest and Northeast, respectively.

The median price of a new home fell 9.5 percent from a month earlier, the largest decline in monthly home prices since the government began collecting data on new home activity. The median new home price was down 11.6 percent from a year ago.

The government reported that the months’ supply of new homes fell to 7.3 in August, compared to 7.6 months posted in July. Homebuilder inventory fell to 262,000 homes on the market in August, the fewest new homes available for sale since November 1992.

It is clear from the supply numbers that home builders are reluctant to begin new construction amid all of the uncertainties surrounding the economy and housing markets. Builders are particularly worried about whether the $8,000 home purchase tax credit which is set to expire at the end of November will be extended. Housing analysts believe that many home buyers purchased new homes during the past several months in anticipation of the tax credit expiring. Most housing organizations, including the National Association of Home Builders, have lobbied heavily to extend the credit.

On balance, the new homes report offered favorable news for the housing industry. Sales were up, inventories were down and year over year home price depreciation is slowing. The modest, but positive monthly trend in new home sales strongly suggests that the new homes market has rebounded from its January cyclical lows. The new homes report combined with recent existing home sales and housing starts reports indicate that the housing correction is over. However, all of the reports also indicate that the housing recovery will be a slow and modest one.