SALES of new homes in the United States rose in March, but the number of new properties on the market remains at historically low levels.

However, further gains will be hampered by the broader property glut.

America’s Commerce Department said earlier this week that sales of family homes rose 11.1% to a seasonally adjusted annual rate of 300,000, up from a near record low of 270,000 in February, when harsh winter weather hit the economy.

Analysts had expected a 280,000-unit rate in March.

The market for new homes is being squeezed by competition from previously-owned homes and a deluge of foreclosed properties, even though inventories of new properties in March fell to 183,000 units – the lowest since August, 1967.

Builders, hurt by the weak market, are holding back on new home construction.

“Home sales are stabilising, but we continue to see housing demand as moving sideways, more than accelerating in 2011,” said Prajakta Bhide, a research analyst at Roubini Global Economics, in New York.

The report comes as top Federal Reserve officials prepared to meet this week to assess the economy, amid signs that activity slowed sharply in early 2011.

Although the US central bank is expected to continue its $600bn government bond-buying programme which ends in June, debate is most likely to focus on the next steps the Fed should take with the monetary stimulus it has lent the economy.

While housing now accounts for a fraction of gross domestic product, indications that it continues to struggle may weigh on consumer confidence and have a negative impact on spending.

Standard & Poor’s Ratings Services described conditions for US homebuilders as still tough, and said it did not expect a significant improvement until next year.

A report last week showed there were 3.55m previously owned homes on the market in March, well above the natural rate of between 2m and 2.5m.

Including foreclosed homes and those on the verge of being repossessed by banks, economists say supply is in the range of 8m to 9m.

Existing home sales rose to an annual rate of 5.1m last month. The new home market accounts for less than 10% of the housing market.

Underscoring the risks for new homes, distressed properties accounted for 40% of existing home sales last month. Such sales typically occur at 20 to 30%.

“We are not going to see a snap back in the housing market, we have a long way to go before we see anything close to a normal housing market,” said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.

US financial markets were little moved by the data.

The overall housing market has been hamstrung by a scarcity of jobs and will likely continue to cast a shadow over the broader economy. Poor weather depressed new home sales in the first two months of the year and held back building activity.

The US government is expected to report tomorrow that overall economic growth slowed to a 2% annual pace in the first quarter of 2011, according to a Reuters survey, after a brisk 3.1% in the last three months of 2010.

Much of the anticipated slowdown is blamed on the bad weather that blanketed large parts of the US in January and February, and a spike in petrol.