By Anna Louie Sussman

WASHINGTON -- Sales of newly built homes edged down in October, a sign the housing market could be losing momentum in the closing months of the year.

Purchases of new single-family homes fell 1.9% in October from the prior month to a seasonally adjusted annual rate of 563,000, the Commerce Department said Wednesday, well below the 595,000 forecast by economists surveyed by The Wall Street Journal.

New-home sales had hit a multiyear high in July at a pace of 622,000 but have stayed below the 600,000 mark since then.

"New-home sales likely have peaked for this cycle," said economist Ian Shepherdson of Pantheon Macroeconomics, citing the "recent spike in mortgage rates -- which has further to go."

Despite the slowdown from the summer, sales have been stronger in the later months of the year than in the first quarter. Overall, steady job gains and historically low mortgage rates had supported the housing market throughout 2016, but that may not last as rates rise and job creation slows.

Through the first 10 months of the year, sales were up 12.7% compared with the same period in 2015. That measure was more consistent with other gauges of the housing market showing improvement through most of this year.

New-home sales account for a fairly small slice of U.S. home-buying activity, and sales data can be extremely volatile from month to month. October's decrease from the prior month came with a margin of error of 13.1 percentage points, the Commerce Department said. Sales for September were revised down to a 574,000 pace from an earlier estimate of 593,000.

"This new home-sales data...reveals the potential for some weakness going forward," said analysts at Contingent Macro Advisors LLC.

The recent pace of new-home sales is about half the peak rate reached in 2005.

Sales of new homes fell in all regions except the West. The slight uptick in inventory suggests home builders are responding to sustained demand, which pushed down supply in recent months and raised prices.

Wednesday's report showed there was a 5.2-month supply of newly built homes available at the end of October, given the current sales pace. The median price of new homes sold in October was $304,500, up from $298,700 a year earlier.

To some observers, that suggests the housing market will continue its recovery.

"Home sales are well-positioned for sustained growth in the year ahead," said Brittany Baumann, macro strategist at TD Securities Inc.

"While the recent jump in mortgage rates may dampen sales activity in the near term, rates remain near historically low levels and barring a significant move higher, sales activity should remain supported by ongoing job growth, rising incomes and a further pickup in single-family residential construction," she said.

Sales of existing homes, which account for the bulk of purchases, rose 2.0% in October from the prior month to the highest pace since early 2007, the National Association of Realtors said Tuesday. Sales had softened a bit during the summer months but rebounded in September and October.

The U.S. housing market's prolonged recovery following the 2007-09 recession was a solid contributor to overall economic growth in recent years. But a pullback in residential investment during the second and third quarters, following eight consecutive quarters of growth, has acted as a drag on the broader economy.

Realtors are looking for new construction to infuse the market with more supply, as inventory of existing homes dwindles and prices rise faster than most peoples' wages. That has created affordability issues, especially for first-time buyers.

Home-building activity rebounded in October, with starts in single-family and multifamily housing posting increases, and permits edging higher as well, the Commerce Department said last week. Home-builder sentiment also held at an elevated level in November, the National Association of Home Builders said last week, although construction is still at historically low levels.

Borrowing costs remain low for prospective home buyers who qualify for loans. The average interest rate on a 30-year fixed-rate mortgage in October was 3.47%, below the October 2015 average of 3.80%, according to Freddie Mac. But mortgage rates have already risen since then and may continue to to do so if, as many economists surveyed by The Wall Street Journal predict, Federal Reserve officials raise interest rates at their December policy meeting. That could further curb enthusiasm for home buying.

The Commerce Department's full report on U.S. new-home sales can be accessed at: https://www.census.gov/construction/nrs/pdf/newressales.pdf

Write to Anna Louie Sussman at anna.sussman@wsj.com

(END) Dow Jones Newswires

November 23, 2016 11:57 ET (16:57 GMT)

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