By Laura Kusisto

Existing home sales rebounded in March, as buyers flooded into the market for the spring season and were only partly deterred by a shortage of inventory.

Purchases of previously owned homes, which account for the vast majority of U.S. sales, increased to a seasonally adjusted annual rate of 5.71 million last month, up 4.4% from February, the National Association of Realtors said Friday. That was their highest pace in 10 years.

The increase comes after home sales dropped a revised 3.9% in February because of rising prices and mortgage rates and a shortage of inventory.

Compared with last March sales were up 5.9%. Italso marked the third time in five months that sales have reached a cyclical high.

Lawrence Yun, the NAR's chief economist, said buyer demand has remained surprisingly strong despite rising prices and tight inventory. Sales are "doing much better than I anticipated, particularly in light of affordability challenges," he said.

Still, economists said that the pace of sales remains much lower than it should be, especially taking into account population growth.

"We would see record sales, sales that we haven't seen since 2005, but since there's no inventory we're going to underperform potential," said Nela Richardson, chief economist at real-estate brokerage Redfin.

Inventory increased 5.8% at the end of March from a month earlier, but it was still down 6.6% from a year earlier. At the current sales pace, it would take 3.8 months to exhaust the supply of existing homes on the market. Economists say the typical supply is roughly six months.

Inventory has remained low in part because of a sluggish rate of new-home construction and reluctance of sellers to put their homes on the market for fear they won't be able to find anything to buy.

U.S. housing starts declined 6.8% in March, but the overall trend remains toward increasing new-home construction. New home building was up 8.1% in the first quarter from the same period in 2016, the Commerce Department said Tuesday.

Low inventory is also helping to push up prices much faster than incomes, which in turn is slowing the pace of sales. The median sale price rose 6.8% in February from a year earlier, to $236,400.

There is some evidence that new buyers are also finally starting to enter the market, although rising prices remain a deterrent. First-time home buyers made up to 32% of the market, unchanged from February and up from 30% a year ago.

In the first quarter, Tian Liu, chief economist atGenworth Mortgage Insurance, said the company saw a 5 percentage-point increase in the share of mortgages issued to first-time buyers to nearly 50%. The company specializes in the type of low down payment loans experts say could help lure young buyers into the market.

"We are confident that first-time home buyers will continue to drive this market," he said.

Declining mortgage rates could also help drive additional demand in the coming months. The rate for a 30-year mortgage declined to 3.97% this week, from 4.08% a week earlier, mortgage company Freddie Mac said on Thursday.

News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

--Sarah Chaney and Ben Leubsdorf contributed to this article.

Write to Laura Kusisto at laura.kusisto@wsj.com

(END) Dow Jones Newswires

April 21, 2017 12:04 ET (16:04 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.