WASHINGTON (Reuters) - U.S. home resales surged to a 10-year high in January as buyers shrugged off higher prices and mortgage rates, signaling rising confidence in the economy and bolstering expectations of a pickup in growth in the first quarter.

A house-for-sale sign is seen inside the Washington DC Beltway in Annandale, Virginia January 24, 2016. REUTERS/Hyungwon Kang/Files

The National Association of Realtors’ report on Wednesday came as the labor market nears full employment and investors wait for the Trump administration to act on its promises to cut taxes, increase infrastructure spending and reduce regulations.

“Existing home sales continue to shine and this bodes well for consumer spending which helps the economy go. Team Trump is trying to boost economic growth and today’s existing home sales will make the job a little easier,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

Existing home sales jumped 3.3 percent to a seasonally adjusted annual rate of 5.69 million units last month, the highest level since February 2007, the NAR said.

Economists had forecast sales rising only 1.1 percent to a pace of 5.54 million units in January. Home resales were up 3.8 percent from January 2016.

Though the nation’s housing inventory increased from December, it remained near a record low. As a result, the median house price vaulted 7.1 percent from a year ago to $228,900 in January. That was the biggest increase since January 2016.

Demand for housing is being underpinned by a strengthening labor market, which is improving employment opportunities for young adults and, in turn, boosting household formation.

That helped homebuilder Toll Brothers Inc to report on Wednesday higher-than-expected profit and revenue for the first quarter and to raise its deliveries forecast for the year.

But a persistent shortage of properties available for sale, which is lifting house prices, remains an obstacle to a robust housing market. That is likely to put pressure on homebuilders to ramp up construction.

While the 30-year fixed mortgage rate appears to be stabilizing after rising rapidly in recent months, it still remains above 4 percent. In contrast, annual wage growth is running below 3 percent.

A separate report from the Mortgage Bankers Association on Wednesday showed a 2.8 percent drop in applications for loans to purchase homes last week.

The PHLX housing index was trading higher as shares in the nation’s largest homebuilder, D.R. Horton, gained 0.12 percent. Shares in Lennar Corp rose 0.14 percent and Pultegroup climbed 0.41 percent.

The overall U.S. stock market was largely unchanged, while the dollar was slightly stronger against a basket of currencies. Prices for U.S. government bonds edged lower.

INVENTORY TIGHT

Last month, the number of homes on the market rose 2.4 percent to 1.69 million units, still remaining close to an all-time low of 1.65 million units in December. Housing inventory was down 7.1 percent from a year ago. It has declined for 20 straight months on a year-on-year basis.

Economists say homebuilders are struggling to plug the inventory gap because of difficulties securing funding as well as shortages of land and labor. The NAR estimates housing starts and completions should be in a range of 1.5 million to 1.6 million units to alleviate the chronic shortage.

Housing starts are running above a rate of 1.2 million units and completions around a pace of 1 million units.

“Inventories of unsold homes remained near a record low ... which is liable to be a bigger problem for sales during the ramp-up into the key spring selling season than it is in the middle of the winter, when sales are at their seasonal low point,” said Ted Wieseman, an economist at Morgan Stanley in New York.

At January’s sales pace, it would take 3.6 months to clear the stock of houses on the market, unchanged from December. A six-month supply is viewed as a healthy balance between supply and demand.

With fewer homes available for sale, house prices maintained their ascent last month, recording their 59th consecutive month of year-on-year gains. The higher prices are increasing equity for homeowners and might encourage some to put their homes on the market, but could sideline first-time buyers from the market. First-time buyers accounted for 33 percent of transactions last month, well below the 40 percent share that economists and realtors say is needed for a robust housing market. That was up from 32 percent in December and a year ago.

“We have concerns that continued supply constraints in the housing market will allow outsized house price gains again in 2017, especially hurting potential first-time homebuyers,” said David Berson, chief economist at Nationwide in Columbus, Ohio.