WASHINGTON (Reuters) – Sales of new U.S. single-family homes unexpectedly fell in December, likely held down by a shortage of more affordable homes, but the overall housing market remains supported by lower mortgage rates.

The report from the Commerce Department on Monday, which also showed downward revisions to sales for the prior three months, bucked a recent streak of fairly strong housing data. The strength in housing after it slumped in 2018 and through the first half of 2019 could help to offset some of the drag on economic growth from weakness in business spending and manufacturing.

New home sales slipped 0.4% to a seasonally adjusted annual rate of 694,000 units last month, with sales in the South dropping to more than a one-year low. It was the third straight monthly decline in sales.

November’s sales pace was revised down to 697,000 units from the previously reported 719,000 units. Sales last month were concentrated in the $200,000-$749,000 price range. New homes priced below $200,000, the most sought after, accounted for only 10% of sales.

Economists polled by Reuters had forecast new home sales, which account for about 11.1 % of housing market sales, would increase 1.5% to a pace of 730,000 units in December.

U.S. financial markets were little moved by the data.

HOUSE PRICES STILL ELEVATED

New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales jumped 23.0% from a year ago. For all of 2019, new home sales increased 10.3% to 681,000 units, the highest since 2007.

The housing market is being supported by cheaper mortgage rates after the Federal Reserve cut interest rates three times last year. The 30-year fixed mortgage rate has dropped to an average of 3.60% from its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac.

Reports this month showed sales of previously owned homes jumped to near a two-year high in December and housing starts raced to a 13-year peak. Though permits for the future construction of single-family housing permits fell in December, that followed seven straight monthly gains.

Housing is expected to have contributed to GDP growth again in the fourth quarter. Residential investment rebounded in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession.

The Atlanta Fed is forecasting GDP to rise at a 1.8% annualized rate in the fourth quarter. The economy grew at a 2.1% rate in the July-September period. The government will publish its snapshot of fourth-quarter GDP on Thursday.

Despite the improvement following a soft patch in 2018 through early 2019, the housing sector, which accounts for about 3.1% of gross domestic product, remains constrained by a lack of homes, especially in the lower-priced segment of the market, because of land and labor shortages.

That is keeping prices elevated. The median new house price rose 0.5% to $331,400 in December from a year ago. New home sales in the South, which accounts for the bulk of transactions, dropped 15.4% in December to a rate of 347,000 units, the lowest since October 2018. Sales declined 11.8% in the Northeast, but rose 10.1% in the Midwest and surged 31.0% in the West.

There were 327,000 new homes on the market last month, up 1.6% from November. At December’s sales pace it would take 5.7 months to clear the supply of houses on the market, up from 5.5 months in November.

More than two-thirds of new homes sold in December were either under construction or yet to be build.

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