Demand for new homes jumped in July, rising 9.6% compared to the previous month, according to numbers released Wednesday by the U.S. Census Bureau. That translates into a seasonally adjusted sales pace of 433,000 new-homes last month, which is 13.4% below the activity in July 2008.

“Builders went three for four in the month of July, according to this report. Sales were up, inventories down, and data revisions boosted the sales numbers for April, May, and June,” said Patrick Newport, U.S. economist for IHS Global Insight in Lexington, Mass. “The report's one blemish is that the median time it took to sell a new home jumped to a record-high 12.4 months. From a builder's perspective, the market for selling new homes is still brutal, despite the recent pickup in demand.”

As Newport alluded, new-home inventories did drop in July, falling to 271,000 houses. That’s quite low, but so are current sales levels. As a result, that inventory represents 7.5 months of supply based on July sales activity.

But as the deadline to use the $8,000 federal housing tax credit approaches, no one is quite sure what the sales pace will be in the months ahead—or how far it might fall once the credit ends Nov. 30. “The question hanging over this report and other recent good news about housing is the impact of the tax credit for first-time homebuyers,” Newport noted. “As the ‘cash for clunkers’ program showed, temporary incentives can have powerful effects. After the credit expires at the end of November, sales, starts, and prices will take a hit. The big unknown is how big this hit will be.”

Michael Rehaut, an analyst with J.P. Morgan, agreed. In a research note, he urged investors to show prudence regarding today’s numbers and other recent positive housing statistics. “We continue to view these recent data points, and the sustainability of this upward trend, with some caution,” he wrote. “… [T]he second half is the seasonally weaker part of the year from a demand standpoint, as well as the fact that the federal tax credits are expiring and California is no longer accepting new home credit applications” for its state housing tax credit.

He also noted pricing challenges in the months ahead. In July, the median sales price for a new home was $210,100, which is essentially the same compared to June. That won’t be the case for long, according to Rehaut. “Prices [are] relatively flat, but we believe more declines are necessary,” the analyst said. “We continue to believe further declines in new home prices are necessary, given continued weak demand.”

Alison Rice is senior editor, online, at BUILDER magazine.