(New-home sales report updated with additional detail and stock prices.)

NEW YORK (

TheStreet

) -- Sales of newly built homes unexpectedly fell 8.1% in October to a seasonally adjusted annual rate of 283,000 the Commerce Department said Wednesday morning.

The figure came in below expectations for a rate of 314,000 after a

rate of 307,000 in September

.

The government report estimated that, at the current sales pace, there was an 8.6-month supply of new homes on the market at the end of October, up from a 7.9-month supply at the end of September. There were a total of 202,000 new homes available for purchase during October, the lowest level since June of 1968.

The median sales price of a new home fell a record 13.9% in the month to $194,900, the lowest level since 2003.

October's median new-home sale price was 9.4% lower than in the year-earlier month.

New-home sales declined in most areas of the U.S., led by a 23.9% drop in the West, 20.4% in the Midwest and 12.1% in the Northeast. In the South sales gained 3.1%.

The government data followed a report on Tuesday from the National Association of Realtors which showed that

sales of previously occupied homes fell 2.2% in October to a slightly better-than-expected seasonally adjusted annual rate of 4.43 million units.

>>Existing-Home Sales Fall 2.2% in October

Though the existing-home sales data came in a hair better than economists had forecast, October's rate of existing-home sales remained 25.9% below year-earlier levels "when sales were surging prior to the

initial deadline for the first-time buyer tax credit," the NAR said. July's rate of 3.84 million homes sold was a

15-year low.

"The housing market is experiencing an uneven recovery, and a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales," said NAR chief economist Lawrence Yun. "Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels. Based on current and improving job market conditions, and from attractive affordability conditions, sales should steadily improve to healthier levels of above 5 million by spring of next year."

James Russell, partner and CFO at The Collingwood Group, a Washington-based business advisory firm specializing in the mortgage industry, told

TheStreet

it's a good sign for the housing market and economy that a bulk of October's existing-home purchases were made by investors, not by people who intend to live in the homes.

He said the trend is "encouraging" and "good for America," showing that "there is real interest in real estate" and that investors see long-term value in buying homes at relatively depressed prices today. Still, he conceded that American families continue to be constrained by credit availability and a poor job market.

Homebuilders began construction on 11.7% fewer homes in October to an annualized rate of 519,000, far worse than the expected contraction rate. Applications for building permits, meanwhile, inched 0.5% higher to 550,000, from 547,000.

>>Housing Starts Fall 11.7% in October

Pending home sales fell 1.8% in September, worse than expected and 24.9% lower than in the year-earlier month.

A variety of factors have kept potential buyers from making home purchases in recent months despite

mortgage rates

at near-record lows. High unemployment, a lack of credit and the

expiration of federal tax credits for homebuyers are obvious reasons. The recent foreclosure scandal also plays its part.

>>Mortgage Rates, Loan Applications Rise

Just as the subprime mortgage troubles expanded into a total housing market downfall, the latest scandal in the home loan industry has expanded into a nationwide political firing line aimed -- once again -- toward the banks due to

problems with foreclosure filings

, dubbed "robo-signing."

"People are talking about settlements but we haven't seen anything yet," said Doug Roberts, chief investment strategist at Channel Capital Research and author of

Follow the Fed to Investment Success

. "We're all waiting with baited breath for a solution."

Stocks in the homebuilder sector were mostly higher Wednesday morning.

>>Homebuilder Stocks: Behind the Numbers

The

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that tracks the homebuilder sector, was 1.7% higher following the new-home sales report, while the

iShares Dow Jones US Home Construction

(ITB) - Get Report

gained 1.3%.

Among individual builders,

PulteGroup

(PHM) - Get Report

traded 3.2% higher in the first hour of trading,

D.R. Horton

(DHI) - Get Report

2% and

Toll Brothers

(TOL) - Get Report

3.5%. Small-cap builder

KB Home

(KBH) - Get Report

added 2.5%.

The

SPDR S&P 500

(SPY) - Get Report

ETF added 0.8%.

-- Written by Miriam Marcus Reimer in New York.

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