WASHINGTON, Sept 24 (Reuters) – Sales of new U.S. single-family homes surged to the highest level in more than 3-1/2 years in August, but that likely exaggerates the housing market’s health, and a weakening labor market could limit the boost from falling mortgage rates.

The bigger-than-expected increase in sales last month reported by the Commerce Department on Wednesday was shrugged off by economists, who noted that new housing data was extremely volatile and subject to revisions. They also said the jump in sales was at odds with subdued homebuilder sentiment.