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New home sales slip, casting shadow over housing recovery

A sign advertising new homes for sale is seen on October 24, 2012 in Miami, Florida. New home sales edged lower last month.
A sign advertising new homes for sale is seen on October 24, 2012 in Miami, Florida. New home sales edged lower last month.Joe Raedle / Getty Images

New single-family home sales fell slightly in October and the prior month's pace of sales was revised sharply lower, casting a small shadow over what has been one of the brighter spots in the U.S. economy.

The Commerce Department said on Wednesday sales dropped 0.3 percent last month to a seasonally adjusted 368,000-unit annual rate.

Government data for new home sales are subject to substantial revisions. Indeed, the Commerce Department cut its estimate for September's sales rate to 369,000 from 389,000.

The housing sector has been a point of relative strength this year in an economy beset by flagging business confidence and cooling demand from abroad, and Wednesday's report did not change the view that housing is still in recovery mode.

"Despite the downward revisions, new home sales and the housing market in general are on the right path," said Yelena Shulyatyeva, an economist BNP Paribas in New York. "It's just that progress will be slow."

The data leaves the pace of new home sales just below that reported in May, suggesting little upward momentum in the market for new homes.

Stocks edged lower following the data's publication, also weighed down by investors' concerns that lawmakers might fail to strike a deal to avoid slashing the budget deficit next year, which would likely trigger a recession.

While weakness in business spending has been restraining growth, most recent data has suggested the housing market is gaining momentum while consumer confidence has also been more bullish.

Wednesday's report showed the median sales price was 5.7 percent higher in October from a year ago, an upbeat signal for the housing sector's health. Still, the pace of year-over-year price increases has now slowed in two straight months.

Economists polled by Reuters had forecast sales rising to a 390,000-unit rate last month from the previously reported 389,000-unit rate.

The Commerce Department said Superstorm Sandy, which crashed into the U.S. East Coast at the end of last month, probably had a "minimal" effect on sales activity, and did not affect collection of data.

A separate report showed applications for home mortgages fell last week, though demand for mortgage purchases rose for a fourth straight week.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, dropped 0.9 percent in the week ending November 23.

The MBA's seasonally adjusted index of refinancing applications slipped 1.5 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, rose 2.6 percent.