New home sales surge in August as rates tumble

A rebound is underway in the U.S. housing market thanks to a recent plunge in mortgage rates.

Sales of new single family homes surged 18 percent in August compared to the same time last year...and July's sales numbers were upwardly revised, according to data released Wednesday by the Commerce Department.

The stronger-than-expected sales figures were fueled by heavy buying in the South and the West.

Buyers are coming off the sidelines after watching average mortgage rates plunge to 3.73 percent, according to mortgage finance agency Freddie Mac. The drop in rates came ahead of the Fed's second rate cut in more than a decade, which it delivered in September.

That has fueled gains across the housing sector Other data show housing resales jumped to a 17-month high, while new home construction projects surged to a 12-year high.

And there's more good news to come, according to the research team at Raymond James. It upgraded shares of KB Home, Toll Brothers and Lennar to outperform as that group prepares to report quarterly results.

Raymond James believes the signs of improvement from the housing market will be so strong, earnings outlooks will have to be raised.

That will be good news for a sector that's been a net drag on the economy for the past year and a half.