WASHINGTON U.S. home resales surged to their highest level in 18 months in March as more homes came on the market, a sign of strength in housing ahead of the spring selling season.
The fairly upbeat report from the National Association of Realtors on Wednesday implied the economy was regaining some momentum after hitting a speed bump at the start of the year.
But tepid retail sales and weak factory data suggested the growth rebound will probably be insufficient to convince the Federal Reserve to raise interest rates in June.
"It's consistent with strong growth in the second quarter. We should have a solid spring selling season and should see the housing market continuing to improve through 2015," said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh.
Existing home sales increased 6.1 percent to an annual rate of 5.19 million units in March, the highest level since September 2013. The percent rise was the largest since December 2010. Last month's sales outpaced economists' expectations for a 5.03 million-unit rate.
The outlook for the spring selling season, which runs from April through August, was also boosted by a separate report from the Mortgage Bankers Association showing applications for loans to purchase homes jumped 5 percent last week to the highest level since June 2013.
It was the fourth time in five weeks that purchase applications rose and economists attributed this to moves by the government to ease credit conditions for first-time buyers.
Home sales have been constrained by a shortage of properties on the market, which has pushed up home prices and limited choice for potential buyers. Fewer homeowners are defaulting on their mortgages, meaning fewer foreclosed properties in the pipeline to boost supply.
As such, builders would have to break more ground on new housing units to boost inventories. D.R. Horton Inc (DHI.N), the largest U.S. homebuilder, on Wednesday reported a 30 percent jump in orders.
Despite the sturdy home resales report, the housing index .HGX fell more than 1 percent. The dollar was little changed against a basket of currencies while prices for U.S. Treasury debt fell.
In March, the inventory of unsold homes on the market increased 5.3 percent from a month ago to 2 million units, the highest level since last November. However, supply was up only 2 percent from a year ago.
Realtors and economists say insufficient equity and uncertainty about the economy's strength were forcing potential sellers to stay longer in their homes. A recent survey by the Realtors association showed homeowners on average staying in their homes for 10 years instead of the typical seven years.
At March's sales pace, it would take 4.6 months to clear houses from the market, down from 4.7 months in February. A supply of six months is viewed as a healthy balance between supply and demand.
With supply still tight, the median price for a previously owned home increased 7.8 percent from a year ago to $212,100.
That was the largest percentage gain since February 2014 and suggested that the pace of home price increases, which had been slowing after double-digit growth for much of 2013, appears to be reaccelerating.
"It looks like the combination of limited available inventory and a decline in the share of distressed sales in the market continue to put upward pressure on prices," said Daniel Silver, an economist at JPMorgan in New York.
First-time buyers accounted for 30 percent of transactions last month, well below the 40 percent to 45 percent share that economists and realtors say is required for a strong housing recovery.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)