By Lucia Mutikani

WASHINGTON (Reuters) – New U.S. single-family home sales jumped to a seven-month high in February, suggesting the housing market recovery continued to gain momentum despite the challenges of high prices and tight inventories.

Other data on Thursday showed an unexpected increase in the number of Americans filing for unemployment benefits last week. Still, the labor market continues to tighten, which together with the strength in housing, should underpin economic growth.

The Commerce Department said new home sales increased 6.1 percent to a seasonally adjusted annual rate of 592,000 units last month, the highest level since July 2016. Sales have now recouped the sharp drop suffered in December.

Economists had forecast new home sales, which account for about 9.7 percent of the overall market, rising 0.7 percent to a rate of 565,000 units in February. Sales were up 12.8 percent compared to the same month last year, showing the housing market’s resilience.

Last month’s sales were likely partially buoyed by unseasonably warm weather. Although mortgage rates have risen and may go higher, most economists see a limited impact on housing because a tightening labor market is improving employment opportunities for young adults.

In a separate report, the Labor Department said initial claims for state unemployment benefits increased 15,000 to a seasonally adjusted 258,000 for the week ended March 18.

Claims have now been below 300,000, a threshold associated with a healthy labor market for 80 straight weeks. That is the longest stretch since 1970 when the labor market was smaller. The job market is currently near full employment.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose only 1,000 to 240,000 last week.

U.S. stocks were mostly flat as investors focused on whether the House of Representatives would pass a Republican-sponsored bill to begin dismantling Obamacare, which is seen as the first significant policy test for President Donald Trump.

Prices of U.S. Treasuries were trading lower while the dollar <.DXY> was stronger against a basket of currencies.

LABOR MARKET FIRMING

The claims data covered the period during which the government surveyed employers for March’s nonfarm payrolls report. The four-week average of claims fell 7,750 between the February and March survey weeks, suggesting another month of strong job gains.

Job growth has averaged 209,000 per month over the past three months and the unemployment rate is at 4.7 percent, close to the nine-year low of 4.6 percent hit last November. Tightening labor market conditions and rising inflation enabled the Federal Reserve to raise interest rates last week.

The market for new houses is benefiting from a shortage of properties for sale. A report on Wednesday showed a 3.7 percent drop in sales of existing homes in February amid tight inventories and rising house prices. The 30-year fixed mortgage rate is currently around 4.30 percent.

Last month, new single-family homes sales surged 30.9 percent to their highest level since November 2007 in the Midwest and increased 3.6 percent in the South. They jumped 7.5 percent in the West but slumped 21.4 percent in the Northeast.

The inventory of new homes on the market increased 1.5 percent to 266,000 units last month, still less than half of what it was at its peak during the housing boom in 2006.

At February’s sales pace it would take 5.4 months to clear the supply of houses on the market, down from 5.6 months in January.

A six-month supply is viewed as a healthy balance between supply and demand. The median price for a new home fell 4.9 percent to $296,200 in February from a year ago.

(Reporting by Lucia Mutikani; Editing by Paul Simao)