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Nov 23, 11:08 AM EST

Sales of new homes slipped in October

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AP Photo/LM Otero

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WASHINGTON (AP) -- Fewer Americans purchased new homes in October, but sales are still much stronger this year than in 2015 - a positive sign for the housing market.

The Commerce Department said Wednesday that new-home sales fell 1.9 percent last month to a seasonally adjusted annual rate of 563,000 units. Still, sales through the first 10 months of this year are 12.7 percent higher than during the same period in 2015.

Demand for new homes has surged because of a stable job market and low mortgage rates. That has strained supplies as builders have failed to keep pace with homebuyers. Yet new-home sales are running below their historic averages as housing continues to heal from the foreclosures and disruptions that led to the Great Recession at the end of 2007.

Sales fell last month in the Northeast, Midwest and South, while improving in the West. Just 5.2 months' supply of new homes are available on the market, down from 5.6 months a year ago.

The limited selection of new homes has prompted higher prices. The median sales price increased 1.9 percent from a year ago to $304,500.

Separate reports point to strong demand as the market heals and more members of the millennial generation, ages 18 to 34, begin to purchase homes.

"The large millennial generation is expected to provide further demand for single-family housing as older millennials form families at an increasing rate," said David Berson, chief economist at the insurance company Nationwide. "Historically, there is a significant uptick in homeownership at the age of 35 - an age that the oldest millennials are reaching now."

The National Association of Realtors said Tuesday that sales of existing homes rose 2 percent to a seasonally adjusted annual rate of 5.6 million.

The rising sales levels have yet to coax more sellers into the market. Sales listings for existing homes have fallen 4.3 percent over the past year to 2.02 million homes. The shortage has pushed up the median sales price of existing homes 6 percent from a year ago to $232,200.

One uncertainty in the housing market will be mortgage rates, which helped fuel sales gains this year.

Mortgage rates have also leapt upward in the weeks after Donald Trump won the presidential election. The average 30-year, fixed-rate mortgage surpassed 4 percent this week, after staying below 3.5 percent during the end of October. Investors expect the budget deficit to increase under Trump, prompting the interest rate increase.

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