04/22/2013 10:09 EDT | Updated 06/22/2013 05:12 EDT

Sales of previously occupied homes dipped to 4.92M in March as supply remained tight

WASHINGTON - Sales of previously occupied U.S. homes dipped in March as the supply remained tight. But the sales pace remained ahead of last year's.

The National Association of Realtors said Monday that sales dipped to a seasonally adjusted annual rate of 4.92 million, from 4.95 million in February. February's figure was revised lower.

Sales in March were 10.3 per cent higher than a year earlier.

Sales have remained mostly unchanged in the past four months — largely, analysts say, because of a limited supply of homes. Economists still expect the housing market to continue recovering this year.

The low supply, combined with rising demand for housing, could accelerate construction in coming months. The Realtors' group said buyer traffic is 25 per cent higher than it was a year ago.

"A disappointing result for U.S. existing-home sales, but with inventories still very tight, the outlook remains favourable," Jennifer Lee, an economist at BMO Capital Markets, said in a note to clients.

A steady housing recovery is providing support to the economy this year. Builders are starting work on more homes, boosting construction jobs. And home prices are rising. Higher prices tend to make homeowners feel wealthier and encourage more spending.

Still, the pace of purchases of previously occupied homes has been little changed in recent months, partly because of the tight inventory. The supply of available homes has fallen nearly 17 per cent in the past year to 1.93 million.

At the current sales pace, that supply would be exhausted in 4.7 months, below the 6 months typical in a healthy market.

The supply rose 1.6 per cent from February to March. The Realtors' group says it expects a much bigger increase in supply this month as the spring selling season began.

A larger supply would suggest that more sellers are putting their homes on the market because they're confident they can fetch a good price.

The tight supply helps explain why prices have been rising. The median price rose 11.8 per cent from February to March to $184,300, the biggest one-month gain since 2005.

The higher median price partly reflects bigger increases in sales of more-expensive homes. Sales of homes priced from $500,000 to $750,000 jumped 25.3 per cent from a year ago. By contrast, sales of homes priced between $100,000 and $250,000 rose just 7.1 per cent.

The higher prices may be discouraging some investors and weighing a bit on sales. Investors usually seek to buy at a steep discount. Investors bought 19 per cent of homes in March, down from 22 per cent in February.

First-time buyers, who usually drive housing recoveries, are playing a smaller role in the current rebound. They accounted for 30 per cent of sales last month, the same as in February. First-time buyers usually make up about 40 per cent of buyers in a healthy market.

One bright sign in the report is that the percentage of so-called distressed sales fell sharply. Distressed sales include foreclosed homes and homes in which the size of the mortgage exceeds the home's value.

Those sales fell to 21 per cent of the total in March, down from 25 per cent in February. That's the lowest proportion since the Realtors' group began tracking the figure in October 2008.

Steady hiring and near-record-low mortgage rates have helped boost sales. More Americans are moving out on their own after living with friends and family in the recession. That's creating more housing demand.

Still, sales would have to reach an annual pace of 5.5 million to be considered healthy.

Since the housing bubble burst more than six years ago, banks have imposed tighter credit conditions and required larger down payments. Those changes have left many would-be buyers unable to qualify for super-low mortgage rates.

Mortgage rates dropped last week to near-record lows. The average rate for a 30-year fixed mortgage dropped to 3.41 per cent from 3.43 per cent. That's not far from the record low of 3.31 per cent in November.

Rising demand and short supplies have encouraged builders to boost construction. U.S. builders started work on more than 1 million homes at an annual pace in March, the first time they've topped that threshold in nearly 5 years.