WASHINGTON (Reuters) -Sales of new U.S. single-family homes surged in August, but the boost from declining mortgage rates could be limited by a weakening labor market.

New home sales shot up 20.5% to a seasonally adjusted annualized rate of 800,000 units last month, the Commerce Department's Census Bureau said on Wednesday. The sales pace for July was revised higher to a rate of 664,000 units from the previously reported pace of 652,000 units.

Economists polled by Reuters had forecast new home sales, which make up about 14% of U.S. home sales, easing to a rate of 650,000 units. New home sales, which are counted at the signing of a contract, are volatile on a month-to-month basis and subject to big revisions.

They soared 15.4% on a year-over-year basis in August.

Mortgage rates declined as the Federal Reserve prepared to resume easing monetary policy. The U.S. central bank cut its benchmark overnight interest rate last week by 25 basis points to the 4.00%-4.25% target. The Fed projected a steady pace of reductions for the rest of 2025.

The rate on the popular 30-year mortgage dropped to an 11-month low of 6.26% last week, data from mortgage finance agency Freddie Mac showed. It has been edging lower since mid-July and is down from around 7.04% in mid-January.

But the labor market has softened, with nonfarm payrolls gains averaging only 29,000 jobs per month in the three months to August compared to 82,000 during the same period last year.