WASHINGTON -- New single-family U.S. home sales fell by an unexpectedly steep 8.5 percent in March and the median sales prices versus a year ago dropped by the largest amount since 1970, a government report on Thursday showed.

The pace of sales slowed to an annual rate of 526,000 last month, the weakest rate since October 1991, the Commerce Department said. This follows a downwardly revised 575,000 in February and delivered more grim news to the troubled housing sector.

Economists polled by Reuters had forecast March sales to slow to a 580,000 annual pace from the previously reported 590,000 reading the month before.

The inventory of unsold homes dipped 1.1 percent to 468,000 which, at the current level of sales, would take 11 months to clear, up from February's 10.2 months' supply.

The March median sales price for a new home dropped 13.3 percent from the year-ago level and, at $227,600, was down 6.8 percent compared with the month before. The Commerce Department said that the year-on-year percentage decline was the largest since July 1970.

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