Sales of new U.S. homes advanced in March as near record-low mortgage rates helped the industry complete the strongest quarter since 2008, putting the economy on firmer footing.

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A dearth of existing properties is encouraging builders to undertake new projects that will keep fueling the economy. Photographer: David Paul Morris/Bloomberg

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April 23 (Bloomberg) -- Robert Wetenhall, an analyst with RBC Capital Markets, talks about the outlook for the U.S. housing market and homebuilder stocks. He speaks with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." (Source: Bloomberg)

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Purchases of single-family properties climbed 1.5 percent last month to a 417,000 annual pace, Commerce Department figures showed today in Washington . The median estimate of 76 economists surveyed by Bloomberg called for March sales to rise to 416,000.

Shares of homebuilders such as Toll Brothers Inc. (TOL) rallied as cheaper borrowing costs and rising household formation bolstered demand. The figures underscore the view of some Federal Reserve policy makers that residential real estate will contribute more to economic growth this year.

“There is momentum in the housing market, in that inventories are lean, prices are picking up, and people are trying to buy, which is fueling the recovery,” said Daniel Silver, an economist at JPMorgan Chase & Co. and the second-best forecaster of new-home sales in the past two years, according to data compiled by Bloomberg. “You’re seeing spillover in the housing market from broader economic improvement.”

Related: The Real Cost of Home Improvement

Home sales averaged a 424,000 annual rate in the first three months of this year, the strongest since the third quarter of 2008.

Stocks climbed after the figures and as earnings from Travelers Cos. to Netflix Inc. beat estimates. The Standard & Poor’s 500 Index rose 1.2 percent to 1,574.20 at 12:24 p.m. in New York. The S&P 500 Supercomposite Homebuilding Index jumped as much as 6.3 percent, the biggest gain since July 26.

Barclays Optimistic

Barclays Plc analysts raised their view on the industry today to positive from neutral, projecting a 10 percent jump in new-home prices this year amid a “fast and furious” recovery. The median price of a new home climbed 3 percent last month from a year earlier to $247,000, today’s report showed.

Today’s housing figures showing strength in the U.S. economy contrast with weakness elsewhere. Euro-area services and factory output shrank for a 15th month in April as the currency bloc struggled to emerge from a recession, adding to pressure on the European Central Bank to do more to boost growth.

China ’s manufacturing is expanding at a slower pace this month on weakness in global and domestic demand, according to a Purchasing Managers’ Index released by HSBC Holdings and Markit Economics, fueling concern that the world’s second-biggest economy is faltering.

Economists’ estimates for U.S. March new-home sales ranged from rates of 395,000 to 435,000. February was previously reported at a 411,000 annual rate.

By Region

Purchases were 17.6 percent higher in March than the same period in 2012, today’s report showed.

Sales increased in two of four regions from the prior month, with a 20.6 percent gain in the Northeast and a 19.4 percent advance in the South. Demand decreased 20.9 percent in the West and 12.1 percent in the Midwest.

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Builders are responding to increased demand by making more homes available. There were 153,000 new houses on the market at the end of March, the most since November 2011. At the current sales rate, the supply would last 4.4 months, the same as in February.

“We’re in recovery, it’s early, but it certainly feels like it’s real and it feels like it will be sustained,” Douglas Yearley, chief executive officer of Horsham, Pennsylvania-based Toll Brothers, the largest U.S. luxury-home builder, said during a March 4 conference presentation. “We had a few false starts over the last few years, but we had a really good spring 2012 selling season. And now we’re having an even better spring 2013 selling season.”

Home Construction

Housing starts climbed to a 1.04 million annual rate, the fastest since June 2008, the Commerce Department said last week.

At the same time, higher costs for raw materials, limited developed land and tight credit conditions are hurdles. The National Association of Home Builders/Wells Fargo index of builder confidence fell this month to its lowest level since October, data showed April 15.

Builders were still more optimistic about the future, with a gauge of their sales outlook for the next six months increasing to the highest level since 2007.

Mortgage rates hovering near record lows and a healing job market may keep providing a spark for the industry. The average rate for a 30-year fixed mortgage fell to 3.41 percent in the week ended April 18, the third consecutive drop, according to Freddie Mac. The rate slid to an all-time low of 3.31 percent in November.

Fed’s Dudley

“After a long period of being a drag on the economy, the housing market is now providing lift to economic activity,” Federal Reserve Bank of New York President William C. Dudley said in an April 16 speech in Staten Island. “In 2013 it is likely to provide a boost to growth on the order of 0.5 percentage point.”

Figures yesterday from the National Association of Realtors showed previously owned homes sold at a 4.92 million rate in March, down from a 4.95 million pace the previous month.

A lack of inventory of more affordable existing properties has driven up the cost of such homes, making newly-constructed units more attractive to potential buyers. The NAR report showed the median price of an existing home rose 11.8 percent, the most since November 2005, to $184,300 last month from a year earlier.

Sales of new homes are calculated when a contract is signed, making them a timelier barometer than purchases of previously owned dwellings, which are tabulated when a deal closes. Newly constructed houses accounted for about 7 percent of the residential market in 2012, down more than 15 percent before the 2007-2009 recession began.

The strength in housing is spreading to other parts of the economy.

“The majority of the data still points to a robust and sustainable recovery,” Christopher Connor, chief executive officer of Sherwin-Williams Co. (SHW) , said during an April 18 earnings call. “Our sales results in the first quarter support that conclusion.”

Sales at the Cleveland-based company, the largest U.S. paint retailer, rose 1.4 percent in the first quarter from a year earlier to reach a record $2.17 billion.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net