at the current sales pace rose to 7 months' worth.

Profits are falling at builders such as D.R. Horton Inc. as sales slide and inventories swell. The decline in new-home sales contrasts with an unexpected increase in purchases of existing homes reported yesterday, and it bears out Federal Reserve Chairman Ben S. Bernanke's forecast that housing will remain a drag on economic growth into next year.

``The weakness in home sales isn't entirely behind us,'' said Chris Low, chief economist at FTN Financial in New York. ``Price pressures continue to build. Builders are sitting on enormous supplies that are not clearing yet.''

New-home sales had been expected to decline to a 1.049 million rate from September's originally reported 1.075 million pace, according to the median of 64 forecasts in a Bloomberg News survey of economists. Estimates ranged from 980,000 to 1.09 million.

The median price of a new home rose 1.9 percent to $248,500 in October from $243,900 a year earlier, today's report showed.

The number of homes for sale fell to a seasonally adjusted 558,000 during the month, the lowest since March, from 562,000 the prior month. The supply of homes at the current sales rate rose from 6.7 months' worth in September.

Economic Growth

The economy expanded at an annual pace of 2.2 percent in the third quarter, the slowest this year, as home construction registered the biggest decline in 15 years, the Commerce Department said earlier today. The agency raised its estimate for economic growth from 1.6 percent, in part because of an increase in business inventories.

The housing slowdown is continuing. Housing starts tumbled almost 15 percent last month to the lowest level in six years, and building permits, a gauge of future construction, fell for a ninth straight month, a Commerce Department report showed Nov. 17.

``The slowing pace of residential construction is likely to be a drag on economic growth into next year,'' Bernanke said in a speech yesterday in New York.

The Fed has kept interest rates unchanged for the last three meetings after raising them 17 straight times to stifle inflation. Bernanke yesterday said the economy is expanding ``at a solid pace'' outside of housing and the auto industry.

Mortgage Index

Bernanke cited recent gains in new-home sales and a rise in an index of mortgage applications as evidence that the housing market may be bottoming out.

Even so, ``we should keep in mind that even if demand stabilizes in its current range, reducing the inventory of unsold homes to more normal levels will likely involve further adjustments in production,'' he said.

Sales of new homes plunged 25 percent in October from the same month last year, the biggest decline since July, the Commerce Department said in today's report. The number of homes completed and waiting to be sold rose by 6,000 to 166,000 in October.

Sales fell in three of four regions. They dropped 39 percent in the Northeast, 5.6 percent in the Midwest and 1.7 percent in the South. They rose 3.2 percent in the West.

Sales Forecast

New homes account for about 15 percent of the market, and previously owned homes make up the rest. The National Association of Realtors forecasts a 17.3 percent drop in new- home sales this year to 1.06 million, which would still be the fourth-highest on record.

A report yesterday from the Realtors showed sales of previously-owned homes unexpectedly rose in October for the first time in eight months. Sales edged up 0.5 percent to an annual pace of 6.24 million. The median selling price fell 3.5 percent from October 2005, the biggest year-over-year decline on record.

New-home sales may be a more timely barometer of the housing market because they are recorded when a contract is signed. Most sales of existing homes are recorded when a contract closes and reflect buying decisions made months earlier.

Builder Earnings

Builders' earnings are taking a hit. D.R. Horton, the nation's largest homebuilder, reported this month that profit tumbled 51 percent in the quarter ended Sept. 30 as orders slid 25 percent.

``We're in the early stages of a declining market,'' Chief Executive Officer Donald Tomnitz said on a conference call with investors and analysts. ``Most of these downturns are longer and deeper than we envisioned at the beginning.''

Pulte Homes Inc., the largest U.S. homebuilder by market value, reported a 52 percent decline in third-quarter earnings and said it may miss analysts' profit estimates this quarter.

``We continue to operate with the expectation that business conditions remain difficult for at least the near term,'' Richard J. Dugas Jr., Pulte's chief executive officer, said in a statement Oct. 25.

Home buyers are getting some help from declining borrowing costs. The average 30-year fixed mortgage rate fell to 6.18 percent last week from a four-year high of 6.8 percent on July 21, according to Freddie Mac, the second-largest buyer of U.S. mortgages.

``The decline is slowing,'' David Berson, chief economist at Washington-based Fannie Mae, the world's largest mortgage company, said in an interview. ``We'll still see home sales numbers go down some in coming months, but not as rapidly as we've seen in the last several months.''

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net ; Bob Willis in Washington at bwillis@bloomberg.net