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story.lead_photo.caption Model homes and for sale signs line the streets as construction continues at a housing plan in Zelienople, Pa., Wednesday, March 18, 2020. Sales of new homes fell by 3.5% in September to a seasonally-adjusted annual rate of 959,000 million units. The Commerce Department said Monday, Oct. 26, 2020, that despite the modest decrease, sales of new homes are up 32.1% from a year earlier, as the housing market remains strong despite the pandemic. (AP Photo/Keith Srakocic)

New-home sales in the U.S. fell slightly in September, while remaining elevated, suggesting demand is being restrained by lean inventory despite record-low mortgage rates.

Sales dropped 3.5% from August to a 959,000 annualized pace from a downwardly revised 994,000 rate, the Commerce Department said Monday.

Despite the modest decrease, sales of new homes are up 32.1% from a year earlier, the report said. However, the pandemic may start to weigh on the market as the colder winter months arrive and with coronavirus cases spiking across much of the U.S.

"While strong demand and low mortgage rates are supportive of home sales, the resurgence in covid-19 cases, a recovery that may be shifting into reverse and a weak labor market pose downside risks," said Nancy Vanden Houten with Oxford Economics, in an email.

Extremely low borrowing costs and greater buyer appetite for suburban properties has powered residential investment and is seen adding to third quarter economic growth. The Federal Reserve has signaled it expects to hold interest rates near zero at least through 2023. At the same time, a recent decline in mortgage applications -- to the lowest level since July -- suggests a tempering of demand that may allow builders time to work off backlogs.

The number of properties sold for which construction hadn't yet started increased to 319,000 in September, the highest in 14 years and a sign construction will remain robust in coming months.

The housing market, like most of the economy, came to a near standstill in March and in April, causing the typical spring summer buying season to be delayed until the summer. Once economies reopened, pent-up demand translated into sales of both new and existing homes, driving home prices in many places to record highs. In July, home sales spiked 13.9%.

The median price of a new home sold was $326,800, according to the Commerce Department.

Three of four U.S. regions showed slower home sales in September. Purchases declined 4.7% in the South, 4.1% in the Midwest and tumbled almost 29% in the Northeast.

Other figures point to the ongoing high demand for real estate. Sales of existing homes, which make up most of the market, strengthened in September to the highest level in 14 years, and homebuilder optimism stands at an all-time high.

The new-home sales report tends to be volatile: It showed 90% confidence that the change in sales last month ranged from a 23.4% decline to a 16.4% increase.

Information for this article was contributed by Ken Sweet of The Associated Press and by Olivia Rockeman of Bloomberg News.

In this image taken with a drone, new townhouses are shown in Valencia, Pa., on Thursday, Oct. 15, 2020. Sales of new homes fell by 3.5% in September to a seasonally-adjusted annual rate of 959,000 million units. The Commerce Department said Monday, Oct. 26, 2020, that despite the modest decrease, sales of new homes are up 32.1% from a year earlier, as the housing market remains strong despite the pandemic. (AP Photo/Ted Shaffrey)
In this image taken with a drone, new townhouses are shown in Valencia, Pa., on Thursday, Oct. 15, 2020. Sales of new homes fell by 3.5% in September to a seasonally-adjusted annual rate of 959,000 million units. The Commerce Department said Monday, Oct. 26, 2020, that despite the modest decrease, sales of new homes are up 32.1% from a year earlier, as the housing market remains strong despite the pandemic. (AP Photo/Ted Shaffrey)
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