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WASHINGTON—U.S. new-home sales continued to fall in August, and the supply of available homes expanded.

Purchases of newly built single-family homes fell 3.4% to a seasonally adjusted annual rate of 560,000 in August, the Commerce Department said Tuesday, the second straight monthly decline and hitting their lowest level since December. That was below the 591,000 sales pace that economists surveyed by The Wall Street Journal had expected.

More broadly, new-home sales were up 7.5% in the first eight months of 2017 compared with a year earlier.

Supply levels continued to rise in August. At the current sales pace, there were 6.1 months of new homes on the market at the end of the month, a figure…