Housing activity for new residential construction climbed in March, spurred by a greater supply of houses during a crucial spring period.

Sales of new homes rose 7.4% in March to a seasonally adjusted rate of 724,000 units, up from February's rate of 676,000, according to the Census Bureau data released on Wednesday. The reading came in well above Bloomberg's consensus forecast of 685,000.

Inventory also ticked up, with 503,000 homes for sale at the end of March, a 0.6% increase from the prior month and the highest level since 2007, according to Bloomberg. 

Regionally, sales in the South jumped at their fastest pace in nearly four years. Transactions also rose in the Midwest but declined in the West and Northeast. 

The data shows a rise in housing activity despite challenges for homebuilders at the start of the spring selling season, including high mortgage rates and ongoing uncertainty around tariffs. Many would-be buyers are staying on the sidelines, deterred by high borrowing costs. In fact, some measures show mortgage rates approaching 7%, which has discouraged potential buyers.

Read more: When will mortgage rates go down? A look at 2025 rate predictions.

Home loan rates tend to track the 10-year Treasury yield (^TNX), which has risen recently as investors retreated from the traditional safe haven. The Trump administration's tariffs and threats to fire Federal Reserve Chair Jerome Powell caused a reassessment of US assets and a blow to investor confidence in the central bank's independence, though some of those pressures eased slightly on Wednesday.

Adding to affordability challenges, house hunters are also grappling with high home prices. The average sales price of a new home rose 1% to $497,700 in March, while the median sale price declined by 7.5% to $403,600.

Those affordability pressures may worsen. During its post-earnings call Tuesday, PulteGroup (PHM) cautioned that new tariffs could drive up construction costs by about 1% in the back half of the year.

"We're in the range of $5,000 on average, and it will impact every single price point and consumer group that we serve," the homebuilder's CEO, Ryan Marshall, told investors and analysts on Tuesday about tariff-induced price increases. "There might be a few minor nuances, but it's pretty broad across the spectrum."

Read more: What Trump's tariffs mean for the economy and your wallet

Brandon Bell via Getty Images

Builders have been leaning on generous incentives to boost sales, but it's unclear how long this approach can continue if tariffs remain in place.

Taylor Morrison (TMHC) echoed similar concerns on Wednesday, with executives forecasting housing cost inflation for the year in the low single digits, largely due to tariffs on metals like aluminum.

The US has imposed 25% tariffs on foreign imports of steel and aluminum. These tariffs could affect prices for items such as HVAC systems, fireplace boxes, and post-tension cables, and these cost pressures are expected to show up in the fourth quarter as they affect upcoming housing starts.

Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.

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