Sales of new homes (search) shot up 7.3 percent in March, the biggest gain in seven months, as continued low mortgage rates and better weather helped offset two consecutive months of falling sales, the Commerce Department reported Friday.

The gain pushed sales of new single-family homes to a seasonally adjusted annual rate of 1.01 million in March as the housing sector (search) continued to be the standout performer of the economy.

The sales increase was far better than analysts had been predicting. Additionally, the government revised the February performance to show that sales had only slipped by 3.3 percent that month, not the 8.1 percent drop originally reported. Sales during February had been hurt by unusually severe winter snowstorms that blanketed large parts of the country.

The news was not quite as positive for sales of existing homes. The National Association of Realtors (search) said that sales of previously owned homes dropped by 5.6 percent in March. But even with the decline, the annual rate of sales was a solid 5.53 million homes.

Sales of both new and existing homes hit record highs last year and economists believe they will remain strong in 2003, reflecting the fact that mortgage rates, which have fallen to lows not seen in 40 years, will remain at attractive levels in coming months.

Freddie Mac, the nation's second largest purchaser of mortgages, said that 30-year fixed rate mortgages averaged 5.79 percent for the current week, the second straight weekly decline. That rate is very close to the all-time low record in the Freddie Mac series of 5.61 percent set in mid-March, just before the start of the Iraq war. Other mortgage series show that current rates are the lowest since the early 1960s.

The Commerce Department's survey of new home sales showed that the 7.3 percent increase in March was the biggest monthly gain since a 9.3 percent rise last August.

By region of the country, sales of new homes were the strongest in the Northwest, where the sales pace nearly doubled from February, a month when the region was hit by a severe snowstorm. Sales in March came in at an annual rate of 104,000 homes, up 82.5 percent from a rate of 57,000 in February.

New home sales were also strong in the South, rising by 15.9 percent to an annual rate of 503,000 units. The increase was more modest in the West, where sales edged up by 0.4 percent to an annual rate of 271,000 units.

The only region of the country were new home sales declined last month was the Midwest, which suffered a 26.4 percent drop to an annual rate of 134,000 units.