New home sales came in slightly higher than expected for December, rising 4.8% from November.

Housing inventories, meanwhile, fell for the fifth straight month.

The Commerce Department said Friday that sales of newly built houses came in at a seasonally adjusted annual rate of 1.12 million units last month, beating the 1.05 million estimate from economists surveyed by Reuters. This compares with a revised annual sales level of 1.06 million units in November and 1.26 million units in December 2005.

"The number was strong. Like with housing starts, good weather in December, relatively mild weather, helped to bring some buyers out," says Phillip Neuhart, an economic analyst with Wachovia.

The combination of builders sales incentives and relatively low mortgage also helped fuel demand in what is typically a weak month, Neuhart says.

The supply of homes available for sale at the end of December totaled 537,000 units, down from 542,000 units in November. The month's supply number dropped to 5.9 from 6.1 in November.

This was the fifth straight month of declining total inventories, after they peaked at 573,000 homes for sale in July.

"Builders want to shed this inventory, and they're doing so," Neuhart says.

Of course, the burning off of inventory is severely eroding profit margins at most homebuilders, as evidenced by the weak earnings and outlook from Beazer Homes ( BZH) on Thursday.

The benign report did not help homebuilder stocks, which continued their declines from Thursday. Beazer was down 2.5% to $43.27, and Pulte Homes ( PHM) fell 1.5% to $32.59 in morning trading.