WASHINGTON (Reuters) - Sales of new U.S. single-family homes fell more than expected in January as persistently high mortgage rates sidelined potential buyers, the latest indication that housing market activity softened early in the first quarter.

New home sales plunged 10.5% to a seasonally adjusted annual rate of 657,000 units last month, the Commerce Department's Census Bureau said on Wednesday. The sales pace for December was revised higher to a rate of 734,000 units from the previously reported 698,000 units.

Unseasonably cold weather in some parts of the country likely accounted for some of the decline in sales.

Economists polled by Reuters had forecast new home sales, which make up about 15% of U.S. home sales, would slide to a rate of 680,000 units. New home sales are counted at the signing of a contract. The average rate on the popular 30-year fixed-rate mortgage bounced around 7% in December, data from mortgage finance agency Freddie Mac showed.

Though the new construction market remains supported by low inventory of previously owned homes, higher mortgage rates have combined with elevated house prices to significantly erode affordability.

Data last week showed existing home sales tumbled in January and single-family homebuilding dove. Residential spending, which includes homebuilding and home sales, rebounded in the fourth quarter after two straight quarterly declines.