WASHINGTON, April 21 (Reuters) - Contracts to purchase previously owned U.S. homes increased more than expected in March, but higher mortgage rates and tight inventory remained constraints for the housing market.
The pending home sales index rose 1.5% last month to 73.7, the National Association of Realtors said on Tuesday. Economists polled by Reuters had forecast contracts, which become sales after a month or two, increasing 0.5%.
Contracts rose in the Northeast and the densely populated South regions.
They fell in the West and Midwest regions. Pending home sales dropped 1.1% from a year earlier.
Mortgage rates increased through March as the U.S.-Israel war sent oil prices soaring. Mortgage rates track U.S. Treasury yields, which have risen as the Middle East conflict stoked inflation fears.
The popular 30-year fixed mortgage rate averaged 6.38% at the end of March, data from mortgage finance agency Freddie Mac showed. It had averaged 5.98% at the end of February, just before the war started, as Freddie Mac and Fannie Mae expanded purchases of mortgage-backed securities.
"Demand sensitivity to mortgage rates is greatest among first-time buyers, particularly younger buyers," said Lawrence Yun, the NAR's chief economist. "As a result, boosting supply and new-home construction should focus on smaller, more affordable homes."
The NAR reported last week that existing home sales fell to a nine-month low in March. Housing affordability has become an increasingly potent political issue ahead of the November midterm elections.
A survey last week showed homebuilder sentiment plummeted to a seven-month low in April, noting that "energy costs make up approximately 4% of residential construction material input and service costs."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
