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The sprawl of newly built housing is shown in San Marcos, Calif., in this file photo.© Mike Blake / Reuters/Reuters

Sales of new U.S. single-family homes surged to their highest level in 4-1/2 years in January and the month's supply of houses on the market was the smallest since March 2005, further evidence the housing sector recovery is gaining muscle.

The Commerce Department said on Tuesday sales jumped 15.6 per cent to a seasonally adjusted annual rate of 437,000 units, the highest level since July 2008 when the economy was in the throes of a recession.

The percentage gain was the largest since April 1993. December's sales pace was revised up to 378,000 units from the previously reported 369,000 units. Economists polled by Reuters had expected sales to rise to a 381,000-unit rate last month.

In the 12 months through January, sales were up 28.9 per cent.

The report was the latest to suggest the housing market was gaining steam and getting positioned to take the baton from the cooling manufacturing sector as the main driver of the economic recovery.

Demand for housing has been steadily rising and data last week showed the number of previously owned homes on the market in January was the lowest in 13 years, while permits for future home construction hit a 4-1/2 year high.

The recovery in the sector is being supported by record-low mortgage rates, which have been held down by the Federal Reserve's ultra-accommodative monetary policy stance.

New home sales are lagging the overall housing market. But with stocks of previously owned homes dwindling, demand for new homes should pick up significantly. New homes account for about 8 per cent of the overall market.

Last month, the inventory of new homes on the market was at 150,000 units, unchanged from December and not far from record lows. This should encourage builders to continue breaking more ground on homes.

At January's robust sales pace it would take 4.1 months to clear the houses on the market, down from 4.8 months in December. January's supply was the smallest in nearly eight years.

The median sales price for a new home rose 2.1 per cent from a year ago.

Sales last month were up in all four regions, surging 45.3 per cent in the West and soaring 27.6 per cent in Northeast.

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