By Lucia Mutikani
WASHINGTON (Reuters) - Sales of new U.S. single-family homes rose more than expected in April and the stock of houses on the market hit a 3-1/2 year high, further signs the sputtering housing recovery may be close to picking up.
The Commerce Department said on Friday sales increased 6.4 percent to a seasonally adjusted annual rate of 433,000 units, ending two straight months of declines.
"We are not getting a snapback so far this spring. It's just a modest improvement from the harsh winter. The trend is still soft," said Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York.
Economists had forecast new home sales at a 425,000-unit pace last month. Homebuilder shares rallied on the report. Lennar Corp (LEN.N) rose 2.2 percent and D.R. Horton Inc (DHI.N), gained 2 percent.
Compared to April last year, sales were down 4.2 percent.
A run-up in mortgage rates last year and rising home prices, which have outpaced wage growth, are weighing on housing. Home sales are also being hampered by a shortage of properties.
The slump, which started in the second half of last year, has caught the attention of the Federal Reserve, which is scaling back the amount of money it pumping into the economy through monthly bond purchases.
Minutes of the Fed's April 29-30 policy meeting acknowledged the housing weakness.
Officials viewed a range of factors, 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" as hurting activity.
But there are signs a turnaround is imminent.
Sales of previously owned homes increased in April and the inventory of houses was the highest in nearly two years, a report showed on Thursday.
According to Freddie Mac, the fixed 30-year mortgage rate fell to an average of 4.14 percent this week, a near seven-month low, from an average of 4.20 percent the prior week. That should help to improve affordability.
Last month, new home sales jumped in the Midwest to their highest level since November 2007. Sales also rose in the South, but were flat in the West. In the Northeast, sales recorded their largest decline since October 2012.
The inventory of new houses on the market increased 0.5 percent to 192,000 units, the highest level since November 2010. While the stock of new houses on the market has come off a record low hit in July 2012, it remains less than half of 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 improving, the median price of a new home last month fell 1.3 percent to $275,800 from April last year.
(Reporting by Lucia Mutikani, additional reporting by Richard Leong in New York; Editing by Andrea Ricci)