New residential-home sales fell further than expected in February and inventories rose to the highest level in 10 years, the Commerce Department said Friday. Sales of new homes were at a seasonally adjusted annual rate of 1.08 million units, which was 13.4% below last year and 10.5% below the revised January rate of 1.207 million. Economists expected a rate of 1.21 million sales in February. The median sales price dropped to $230,400 from $237,300 a year ago. The seasonally adjusted estimate of new houses for sale at the end of the month was 548,000, representing 6.3 months of supply at the current sales rate, the highest month's supply number in 10 years. "Obviously this is a very disappointing number, well below the market estimate. This is the lowest (sales) number since May '03," says Phillip Neuhart, a Wachovia economic analyst. "Sales are slowing; we've seen mortgage applications on the decline for some time." The dropoff in new home sales was in contrast to a yesterday's strong existing-home sales data . New-home sales data is based off contracts, whereas existing home sales data is based off closings. Since closings can lag by two to three months, new-home sales are a better barometer of the current home sales environment. Compared with last year, sales fell in every region of the country, except the Midwest, where sales rose 1.1%. Sales declined 27.8% in the West, 13.4% in the Northeast, and 9.6% in the South. Homebuilder shares, which were boosted Thursday by the better-than-expected existing-home sales data, gave back some gains Friday. Shares of Ryland ( RYL) recently declined 1.6%, Hovnanian ( HOV) lost 2%, and Toll Brothers ( TOL) shed 1.1%.