Despite the decline, January's sales were the third highest on record, exceeded only by the previous two months.
The drop came out of nowhere. Economists surveyed by CBS.MarketWatch.com expected sales of new homes to remain at an annual rate of about 976,000 after sales of existing homes surged to another record in January.
Separately, the Conference Board, a private research group, reported Tuesday that its Index of Leading Economic Indicators rose 0.5 percent to 106.9 in January from a revised level of 106.4 in December.
The results were slightly better than the 0.4 percent increase economists had expected.
December's sales were revised to 966,000 from 978,000 and November's were marked down to a record 1.002 million from 1.015 million. The Commerce Department revised all of 1998 to recalibrate its seasonal adjustments. Total sales in 1998 were revised to 887,000 from 888,000.
The number of new homes for sale at the end of the month rose to 302,000, a 4-month supply at the current sales pace. It's the largest inventory in two years.
Sales plunged 25 percent to 133,000 in the Midwest, perhaps affected by fierce winter storms in the middle of the month. Sales dropped 7 percent to 77,000 in the Northeast and 4 percent to 437,000 in the South. New home sales rose 8 percent in the West to 271,000.
Housing has been one of the stalwarts of the economy in the past year. Many economists expect housing to slow in the coming months as the stimulative effects of low interest rates and soaring stock prices wear off. But January's dip had nothing to do with higher interest rates and little to do with the flat stock market.
Instead, January's falloff likely reflects both a moderate reduction in demand from very lofty levels and a return to more normal weather patterns that typically depress home sales in the coldest months. Unseasonably warm and dry weather had boosted home sales in November and December.
Any trend toward lower home sales would also reduce sales of furniture, appliances, hardware and garden supplies.