By Sarah Chaney 

WASHINGTON -- U.S. new-home sales dropped slightly in February, continuing a trend of choppy sideways movement for a narrow segment of the housing market.

Purchases of newly built single-family homes -- a relatively small slice of all U.S. home sales -- decreased 0.6% from the prior month to a seasonally adjusted annual rate of 618,000 in February, the Commerce Department said Friday. This was broadly in line with economist expectations.

The pace in January was revised up to a rate of 622,000, from an earlier estimate of 593,000, and home sales for November and December were also revised higher, suggesting more momentum in the market than previously indicated.

Friday's report showed some improvement for the supply of new homes, which has been tight recently and has contributed to a run-up in home prices. At the current sales pace, there was a 5.9-month supply of new homes on the market at the end of February, the highest level since August and well above last February's 5.1-month supply. Still, supply remains tight by historical comparisons. The median sale price for a new home sold in February was $326,800, up 9.7% from a year earlier.

"The demand for new homes should continue to rise with a solid job market, modestly accelerating wages, and positive demographics," said David Berson, Nationwide chief economist. "The impact of rising demand and constrained supply will be another year of strong price gains."

Data on new-home sales can be choppy from month to month, and February's 0.6% decline came with a margin of error of 13.3 percentage points. More broadly, sales rose 0.5% through the 12 months ended in February.

Sales of new homes reached a postrecession high in November, but they have settled lower since and remain well below the elevated levels seen before the 2007-09 financial crisis and recession.

Rising mortgage rates are adding to the affordability crunch. The average rate for a 30-year, fixed-rate mortgage climbed to 4.43% by the beginning of March from 3.95% at the start of January, according to Freddie Mac. The average interest rate as of Thursday stood at 4.45%. Borrowing costs remain low by historical standards.

Rising rates haven't yet deterred buyers of previously owned U.S. homes, which account for the bulk of the market. Existing-home sales rose a solid 3% last month, the National Association of Realtors said Wednesday.

Write to Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

March 23, 2018 11:54 ET (15:54 GMT)