REFILE-WRAPUP 2-U.S. new home sales up, market still seen weak

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* New home sales rise 11.1 pct to 300,000 units

* Median home price falls 4.9 pct from year-ago

* Supply falls to 7.3 months worth

* Sales continue to bounce along the bottom
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By Lucia Mutikani

WASHINGTON, April 25 (Reuters) - Sales of new U.S. homes
rose in March and the number of properties on the market was
its lowest since the 1960s, but further gains will be hampered
by stiff competition from a glut of previously owned houses.

Single-family home sales rose 11.1 percent to a seasonally
adjusted 300,000 unit annual rate, the Commerce Department said
on Monday, up from 270,000 in February. Economists had expected
a 280,000-unit pace.

Despite last month's rise, new home sales are just bouncing
along the bottom.

The market for new homes is being squeezed by competition
from previously owned homes and a deluge of foreclosed
properties, even though inventories in March fell to 183,000
units -- the lowest since August 1967.

"The rebound in new home sales was encouraging, but the
March sales pace merely brings us back to the underlying trend
and indicates that housing continues to bounce around
historical lows," said Omair Sharif, an economist at RBS in
Stamford Connecticut.

The report comes as Federal Reserve officials prepare to
meet on Tuesday and Wednesday to assess the economy, amid signs
activity slowed sharply in the first quarter of 2011.

Though the U.S. central bank is expected to continue its
$600 billion government bond-buying program which ends in June,
debate is most likely to focus on the next steps the Fed should
take with the monetary stimulus it has lent the economy.

While housing now accounts for a fraction of gross domestic
product, signs that it continues to struggle may weigh on
consumer confidence and have a negative impact on spending.
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Graphic - new home sales: r.reuters.com/wep29r

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SUPPLY ELEVATED

A report last week showed there were 3.55 million
previously owned homes on the market in March, well above the
natural rate of between 2 million and 2.5 million.

When foreclosed homes and those that are highly delinquent
are taken into account, economists say supply is anywhere in
the range of 8 million to 9 million.

The new home market accounts for less than 10 percent of
the overall housing market.

"We are not going to see a snap back in the housing market,
we have a long way to go before we see anything close to a
normal housing market," said Robert Dye, senior economist at
PNC Financial Services in Pittsburgh.

U.S. financial markets were little moved by the data.

The overall housing market has been hamstrung by a scarcity
of jobs and will likely continue to cast a shadow over the
broader economy. Bad weather depressed new home sales in the
first two months of the year and held back building activity.

The government is expected to report on Thursday that
economic growth slowed to a 2 percent annual pace in the first
quarter, according to a Reuters survey, after a brisk 3.1
percent in the last three months of 2010.

Much of the anticipated slowdown is blamed on the bad
weather that blanketed large parts of the country in January
and February and a spike in gasoline prices.

In a sign that the market for new homes is far from
recovering, the median sales price for a new home fell 4.9
percent in March from a year-ago to $213,800.

This means the spread between the prices of new and
previously owned houses is now about $54,200. It is off a
record high of $80,500 reached in January.

"Existing home sales are so low that this robs demand from
the new housing sector," said Yelena Shulyatyeva, an economist
at BNP Paribas in New York.

"A lot of these existing houses are three or five years
old, which for a house is still new. But you can buy for much
less than the newly constructed home. The new housing sector
will be the last one to recover."

At March's sales pace, the supply of new homes on the
market slipped to 7.3 months' worth from 8.2 months' worth in
February.