By Laura Kusisto and Sarah Chaney 

WASHINGTON--Sales of previously owned U.S. homes rose strongly in February, overcoming stiff headwinds from a shortage of inventory and affordability concerns caused by rising mortgage rates and home prices.

Existing-home sales rose 3% in February from the previous month to a seasonally adjusted annual rate of 5.54 million, the National Association of Realtors said Wednesday.

Economists surveyed by The Wall Street Journal had expected home sales to remain essentially flat, rising just 0.4% to 5.4 million in February.

Compared with a year earlier, sales in February were up 1.1%. "Housing demand still remains quite strong" despite headwinds from lack of inventory and affordability, said Lawrence Yun, chief economist at the National Association of Realtors.

Affordability is a growing obstacle for new buyers trying to enter the market. The national median existing home price rose 5.9% in February compared to a year earlier to $241,700.

That is being compounded by rising mortgage rates. The average rate nationwide for a 30-year, fixed-rate mortgage climbed nearly half a percentage point to 4.43% by the beginning of March from 3.95% at the beginning of January, according to mortgage-finance giant Freddie Mac. Rates as of last Thursday stood at 4.44%, according to Freddie Mac. Borrowing costs remain low by historical standards.

Mr. Yun said rising mortgage rates appear to be locking some owners into their current homes because if they sell they will face higher mortgage rates.

The tax bill that passed late last year also reduces the tax advantages afforded to homeowners, which could have some impact on the market, especially in high-cost regions such as New York, New Jersey, California and high-end suburbs of Chicago. Sales were strong last month in the West but sluggish in the Northeast.

Thus far, Mr. Yun said the tax bill is having less of an impact on the market than the Realtors had warned. "Surprisingly consumers are not looking at the mortgage interest deduction or the property tax deduction," he said.

A shortage of available houses on the market has driven up prices in many regions. There was a 3.4 month-supply of homes on the market at the end of February, based on the current sales pace, down from 3.8 months of supply at the same time last year. Economists consider six months worth of inventory indicative of a balanced market between buyers and sellers. Total housing inventory declined in February from a year earlier to 1.59 million existing homes for sale.

"We are still in a critical housing shortage situation," Mr. Yun said.

Builders are struggling to ramp up construction to meet demand and alleviate this supply shortage. Total U.S. housing starts, which includes single-family homes and apartments, fell 7% in February, the Commerce Department said last week. Single-family starts crept up 2.9%, though they remain well below normal levels.

Economists say the lack of supply, along with new headwinds to demand from the tax bill and mortgage rates, could lead to a weak spring selling season, with sales expected to remain essentially flat from last year. That could offer some good news for buyer, who may have a little more wiggle room to negotiate.

Write to: Laura Kusisto at laura.kusisto@wsj.com and Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

March 21, 2018 10:15 ET (14:15 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.