WASHINGTON (Reuters) - U.S. home sales fell more than expected in March as rising demand stoked by declining mortgage rates and slowing house price inflation continued to be frustrated by a lack of properties, especially in the lower-priced segment of the market.

FILE PHOTO: A 'for sale' is seen outside a single family house in Garden City, New York, U.S. on May 23, 2016. REUTERS/Shannon Stapleton/File Photo/File Photo

The report from the National Association of Realtors (NAR) on Monday could temper expectations of a strong spring selling season that had been bolstered by a recent surge in applications for loans to buy homes. The housing market continues to buck the broader economy, which has shown signs of gaining momentum after stumbling at the turn of the year.

“Given mortgage rates have dropped and home prices aren’t appreciating as quickly, there is more opportunity for home shoppers, who are gearing up for the spring season,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “The major problem for home buyers is the low supply of homes, especially at the lower end of the market.”

Existing home sales dropped 4.9 percent to a seasonally adjusted annual rate of 5.21 million units last month. February’s sales pace was revised down to 5.48 million units from the previously reported 5.51 million units. Sales fell in all four regions of the country last month.

Economists polled by Reuters had forecast existing home sales would fall 3.8 percent to a rate of 5.30 million units last month. Existing home sales, which make up about 90 percent of U.S. home sales, declined 5.4 percent from a year ago. That was the 13th straight year-on-year decrease in home sales.

Economists expect housing probably remained a drag on gross domestic product in the first quarter. Residential investment contracted in 2018, logging its weakest performance since 2010.

While lower borrowing costs and house prices as well as strengthening wage growth have improved affordability, land and labor shortages are making it difficult for builders to ramp up construction of relatively cheaper priced homes.

The 30-year fixed mortgage rate has dropped from a peak of about 4.94 percent in November to around 4.12 percent, according to data from mortgage finance agency Freddie Mac. Applications for loans to purchase a home jumped to an almost nine-year high in the week ending April 12.

A survey last week showed that while builders reported strong demand for new homes in April, they also complained about “affordability concerns stemming from a chronic shortage of construction workers and buildable lots.”

The PHLX housing index fell more than 1.0 percent on Monday, underperforming a broadly flat U.S. stock market. The dollar slipped against a basket of currencies. Prices of U.S. Treasuries fell.

BROAD SALES DECLINES

There were steep declines in sales in the lower and upper ends of the market last month. The NAR said last year’s revamp of the U.S. tax code, which reduced the amount of mortgage interest payments homeowners could deduct, was hurting sales of homes priced $1 million and above.

The supply of previously owned homes on the market rose to 1.68 million last month from 1.63 million in February and 1.64 million a year ago. At March’s sales pace, it would take 3.9 months to exhaust the current inventory, up from 3.6 months in February.

A six-to-seven-month supply is viewed as a healthy balance between supply and demand. The median existing house price increased 3.8 percent from a year ago to $259,400 in March.

The Commerce Department reported last Friday that housing starts dropped to a rate of 1.139 million units in March, the lowest level since May 2017.

That was the second straight monthly drop in homebuilding and pushed starts substantially below the 1.5 million to 1.6 million units per month range that realtors estimate is needed to alleviate the shortage.

“Supply constraints which have hampered the market for housing for a few years remain in place,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.

Houses for sale typically stayed on the market for 36 days in March, down from 44 days in February, but up from 30 days a year ago. About 47 percent of homes sold in March were on the market for less than a month.

First-time buyers accounted for a third of sales last month, little changed from February and up from 30 percent a year ago. Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.