U.S. New Home Sales Rose in March

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A new home for sale in Mahwah, N.J.

WASHINGTON—U.S. new-home sales surged in March, capping off a strong first quarter in a segment of the housing market characterized by solid buyer demand.

Purchases of newly built single-family homes—a relatively narrow slice of all U.S. home sales—increased 4.0% from the prior month to a seasonally adjusted annual rate of 694,000 in March, the Commerce Department said Tuesday.

March’s rise comes on the back of a 3.6% increase in February and upward revisions for both January and February sales rates.

The solid sales gains show a low unemployment rate and historically low layoff levels are supporting demand for housing, said

Mark Vitner,

senior economist at Wells Fargo.

“The other big driver is that millennials are reaching a point in their lives when they’re beginning to get married, start a family and are looking to buy a home,” Mr. Vitner said.

Data on new-home sales can be choppy from month to month, and March’s 4.0% gain came with a margin of error of 18.6 percentage points.

Still, the broader picture shows strength in the market for new homes. Sales rose 8.8% through the 12 months ended in March.

At the current sales pace, there was a 5.2-month supply of new homes on the market at the end of March, lower than the January and February figures but reflective of a jump in sales.

Other inventory measures indicate progress. The number of homes for sale at the end of March grew about 13% from a year earlier, signaling that home construction is beginning to catch up with buyer demand.

“Builders are selling homes virtually as fast as they can build them,” Mr. Vitner said.

Existing-home sales, which account for the bulk of the housing market, were well below year-earlier levels in March, in part due to tight inventory.

“It is likely that the lack of supply of existing homes, and the resulting stagnant pace of sales in that sector, is pushing home buyers into the new home sales market,” said Nationwide Chief Economist

David Berson

in a note to clients.

Despite the increase in new-home inventory levels, rising demand is contributing to a run-up in home prices, Mr. Berson said.

The median sale price for a new home sold in March was $337,200, up 4.8% from a year earlier.

Rising mortgage rates are adding to the affordability crunch. The average rate for a 30-year, fixed-rate mortgage was 4.44% in March, up from 4.03% in January, according to

Freddie Mac
.

Still, mortgage rates remain well below prerecession levels.

“The pickup in interest rates is more likely to spur folks who are thinking about buying a home to go ahead and do it,” Mr. Vitner said.

New-home sales in the West were particularly strong, growing 28.3% in March from a month earlier and posting the best annual sales rate in more than a decade. Sales in Northeast were less robust, which could be due to harsh weather in the region.

Write to Sarah Chaney at sarah.chaney@wsj.com

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