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New home sales rise, but momentum lacking

A new subdivision project of residential homes in shown in Glenelg, Maryland September 25, 2013. REUTERS/Gary Cameron

By Lucia Mutikani

WASHINGTON (Reuters) - Sales of new U.S. single-family homes rose in April and the stock of houses on the market hit a 3-1/2 year high, but economists said the market was still not clearly gaining steam.

Sales increased 6.4 percent to a seasonally adjusted annual rate of 433,000 units, the Commerce Department said on Friday.

The rise ended two straight months of declines and beat Wall Street expectations, but sales remained in line with their sluggish first-quarter average.

"The data have yet to show a meaningful pickup in activity early on in the spring following the unusually harsh winter," said Daniel Silver, an economist at JPMorgan in New York.

But investors welcomed the report and snapped up homebuilder shares, such as Lennar Corp (LEN.N) and D.R. Horton Inc (DHI.N).

A run-up in mortgage rates and home prices over the last year has weighed on the market. Sales have also been hampered by a shortage of properties and the brutally cold winter.

The slump has caught the attention of the Federal Reserve, which is scaling back the amount of money it is pumping into the economy through monthly bond purchases.

Minutes of the Fed's April 29-30 policy meeting released earlier this week showed officials citing a range of factors for the weakness, including "higher home prices, construction bottlenecks stemming from a scarcity of labor and harsh winter weather, input cost pressures, or a shortage in the supply of available lots."


But there are glimmers of hope.

Sales of previously owned homes rose in April, with the inventory of houses for sale reaching the highest level in nearly two years, a report showed on Thursday.

And, according to Freddie Mac, rates on fixed 30-year mortgages fell to an average of 4.14 percent this week, a near seven-month low, which should help to improve affordability.

"We're still digging ourselves out of the soft patch we saw last fall and this winter," said Diane Swonk, chief economist at Mesirow Financial in Chicago.

In the Midwest, new home sales jumped to their highest level since November 2007 last month. Sales also rose in the South. But they were flat in the West and recorded their largest decline since October 2012 in the Northeast.

The inventory of new houses on the market increased 0.5 percent to 192,000 units, the highest level since November 2010. Nevertheless, the stock of new houses on the market remains more than 50 percent below its pre-recession level.

At April's sales pace it would take 5.3 months to clear the supply of houses on the market, down from 5.6 months in March. With inventories rising, the median price of a new home fell 1.3 percent to $275,800 from April last year.

(Reporting by Lucia Mutikani,; Editing by Andrea Ricci)