Feb. 28 (Bloomberg) -- U.S. new home sales unexpectedly declined in January and the median price dropped to the lowest in a year, a sign the economy will get less of a boost from housing, government figures showed.

Purchases dropped 9.2 percent during the month to a 1.106 million annual rate from revised 1.218 million in December that was higher than first reported, the Commerce Department said today in Washington. The median sales price declined to $199,400, the lowest since December 2003, from $229,700.

Measured against sales, the supply of homes increased to 4.7 months in January, the highest since June 2000. A record number of homes for sale may limit new construction and restrain prices, suggesting waning pent-up demand. Sales are down 13 percent from the record high 1.27 million pace in March of last year.

``We're plateauing,'' said Kevin Logan, senior market economist at Dresdner Kleinwort Wasserstein in New York. ``Sales and construction are topping out, just at a high level.''

Economists forecast sales at a 1.125 million annual rate in January after December's previously reported 1.098 million pace, according to the median of 51 estimates in a Bloomberg News survey of economists. Estimates ranged from 1.01 million sales at an annual rate to 1.26 million.

Sales of new homes fell in three of the four U.S. regions. They slumped a record 40.3 percent in the Midwest to 145,000 houses at an annual rate, the slowest since August 2000. They dropped 17.1 percent in the Northeast to 63,000, the lowest since July. Sales decreased 3.3 percent in the South to 560,000. They rose 5.6 percent in the West to 338,000.

Homes for Sale

The number of new homes for sale rose to a record 438,000 last month from 423,000 in December. The median number of months those homes have been for sale increased to 4.4 in January from 4.1.

The decline in prices was influenced by a change in the mix of sales, as purchases of so-called starter homes prices less than $150,000 accounted for a greater percentage of the total.

Of the 85,000 homes sold on an unadjusted basis, 5,000 were valued at less than $100,000 compared with 4,000 in December. Some 18,000 were valued at $100,000 to $149,900 in January, up from December's 12,000.

The most recent economic forecast by the National Association of Realtors calls for new home sales to slow this year to 1.11 million. Last year, a record 1.183 million were sold. Thirty-year fixed mortgage rates will average 6 percent this year, the group estimates.

The Mortgage Bankers Association is forecasting that 30-year fixed mortgage rates will increase to 6.4 percent.

Mortgage Rates

Thirty-year fixed mortgage rates averaged 5.71 percent in January, down from an average of 5.84 percent in 2004, Freddie Mac statistics show. This month, they've averaged 5.63 percent. From 1999 through 2003, the average rate was almost 7 percent.

``It's a correction year, but the floor is not going to drop out of the housing market in this environment,'' Diane Swonk, chief economist at Mesirow Financial Inc., in Chicago, said. ``Mortgage rates are going to go up a little bit and job creation is going to offset that.''

January housing starts, which measure new construction, rose 4.7 percent to a 21-year high of 2.159 million units at an annual rate, the Commerce Department said earlier this month.

The January housing reports also provide a gauge of how much momentum the housing industry carried into the new year. Last year, a record 1.2 million new homes were sold.

``The forces at work in the housing market are still very positive and they've been confirmed by the astonishing numbers we've seen for new housing starts and permits,'' Roger Kubarych, senior economic adviser to HVB America Inc. in New York, said before the report.

Job Creation

Joel Rassman, chief financial officer at Toll Brothers Inc., said he expects increased hiring will more than offset the expected rise in borrowing costs this year. The Horsham, Pennsylvania-based firm is the largest U.S. builder of luxury homes.

Job creation is expected to accelerate to 225,000 jobs this month, the most since October, according to a Bloomberg survey. Economists say between 120,000 and 150,000 new jobs are needed each month to accommodate new workers entering the labor force.

``If mortgage rates increase 50 to 100 basis points this year at the same time as continued significant job growth it would probably still be good for housing,'' Rassman said. ``If someone is unemployed they're not going to buy a house.''

A basis point is 0.01 percent.

Forecasts for higher mortgage rates are based on expectations Federal Reserve policy makers will keep raising their benchmark interest rate this year to keep a lid on inflation. The Fed has increased the federal funds target rate six times since June 30. It's currently 2.5 percent.

To contact the reporter on this story: Victor Epstein in Washington vepstein@bloomberg.net