The Commerce Department said on Monday sales rose 11.1 percent to a seasonally adjusted 300,000 unit annual rate, after an upwardly revised 270,000 unit pace in February.
Economists polled by Reuters had forecast new home sales climbing to a 280,000-unit pace last month from a previously reported record low 250,000 unit rate.
Compared to March last year sales were down 21.9 percent.
The market for new homes is being squeezed by competition from previously owned homes and a deluge of foreclosed properties, even though inventories of new houses are at a 43-1/2 year low.
A report last week showed there were 3.55 million previously owned homes on the market in March, well above the economy's natural rate of between 2 million and 2.5 million.
When foreclosed homes and those that are highly delinquent are taken into account, economists say supply is anywhere in the range of 8 million to 9 million.
The median sales price for a new home rose 2.9 percent last month to $213,800 from February. Compared with March last year, the median price fell 4.9 percent.
At March's sales pace, the supply of new homes on the market slipped to 7.3 months' worth from 8.2 months' worth in February. There were 183,000 new homes available for sale last month, the lowest since August 1967.
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