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.


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.