WASHINGTON (Reuters) - New U.S. single-family home sales fell to a 10-month low in December after three straight months of strong gains.

The Commerce Department said on Thursday new home sales dropped 10.4 percent to a seasonally adjusted annual rate of 536,000 units last month. November's sales pace was revised up to 598,000 units from the previously reported 592,000 units.

Economists polled by Reuters had forecast single-family home sales, which account for 8.9 percent of overall home sales, slipping 1.0 percent to a 588,000-unit rate last month.

New home sales, which are derived from building permits, are volatile on a month-to-month basis and subject to large revisions. Sales were down 0.4 percent from December 2015.


They increased 12.2 percent to 563,000 units in 2016, the highest since 2007. A labor market which is viewed as being at or near full employment is underpinning demand for housing.

Home sales, however, are being constrained by a chronic shortage of properties for sale.

A report from the National Association of Realtors on Tuesday showed the supply of previously owned homes for sale dropped to a 17-year low in December. Supply could remain a challenge for housing with homebuilders continuing to complain about a shortage of skilled workers and land.

Economists so far see a limited impact on demand for housing from the recent run-up in mortgage rates, given labor market strength.

The fixed 30-year mortgage rate increased 43 basis points in December from November to an average of 4.20 percent, according to data from mortgage finance firm Freddie Mac. That was the highest since April 2014.

Further increases are likely as the Federal Reserve has forecast three rate hikes this year. The U.S. central bank raised its benchmark overnight interest rate in December by 25 basis points to a range of 0.50 percent to 0.75 percent.

Last month, new single-family homes sales rose 48.4 percent in the Northeast to their highest level since January 2008. They fell in the Midwest, South and in the West.

With sales weak, the inventory of new homes on the market increased 4.0 percent to 259,000 units, the highest since August 2009. New housing stock remains less than half of its peak during the housing boom.

At December's sales pace it would take 5.8 months to clear the supply of houses on the market. That was the highest since September 2015 and was up from 5.0 months in November.

A six-month supply is viewed as a healthy balance between supply and demand. The median price for a new home increased 7.9 percent to $322,500 in December from a year ago.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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