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Inventory of new homes on the market shrank to its lowest point on record in January, marking a 5.6-month supply at the current sales pace, the Commerce Department reports.

With fewer homes available, the price of new homes increased slightly last month. The median price for a new home ticked up slightly at 0.3 percent to $217,100, which is the highest level since October.

However, January sales of single-family homes mostly stayed falt in January, falling less than 1 percent last month compared to the previous month. New-home sales reached a seasonally adjusted annual pace of 321,000 units.

New-home sales were up 3.5 percent compared to the same time last year, the Commerce Department reported.

"This is indicative of the incremental, steady progress that the market is making toward recovery in conjunction with modest economic and job growth,” said David Crowe, the National Association of Home Builders’ chief economist. “Increasingly, potential buyers are feeling better about their financial situation and their ability to buy a home, but the challenges posed by tight credit conditions and appraisal issues continue to slow that process."

Regionally, the Midwest saw the biggest decline in new home sales in January, a 24.5 percent drop in sales followed by a 10.6 percent drop in sales in the West. On the other hand, the Northeast posted an 11.1 percent gain in new home sales in January, and the South saw a 9.3 percent increase.

Source: National Association of Home Builders

Daily Real Estate News | Monday, February 27, 2012