U.S. homebuilding fell less than expected in January while permits surged to a near 13-year high, pointing to sustained housing market strength amid lower mortgage rates.
Housing starts dropped 3.6% to a seasonally adjusted annual rate of 1.567 million units last month, the Commerce Department said on Wednesday. That followed three straight monthly increases.
Data for December was revised up to show homebuilding rising to a pace of 1.626 million units, the highest level since December 2006, instead of surging to a rate of 1.608 million units as previously reported.
Economists polled by Reuters had forecast housing starts falling to a pace of 1.425 million units in January. Housing starts jumped 21.4% on a year-on-year basis in January.
Building permits soared 9.2% to a rate of 1.551 million units in January, the highest level since March 2007, lifted by gains in both single- and multi-family housing segments.
The housing market remains on solid footing, supported by the lowest mortgage rates in more than three years. Though housing accounts for about 3.1% of gross domestic product, it has a giant footprint on the economy.
Housing market stability could help to keep the longest economic expansion on record, now in its 11th year, on track, amid risks from the coronavirus, slowing consumer spending and weak business investment.
A survey on Tuesday showed confidence among homebuilders hovering near a two-year high in February. But builders continued to complain that “a shortage of construction workers and a dearth of lots are hindering the production of affordable housing in local communities across the nation.”
The 30-year fixed mortgage rate is at an average of 3.47%, the lowest since October 2016, according to data from mortgage finance agency Freddie Mac. The Federal Reserve cut interest rates three times in 2019 and has signaled monetary policy could remain unchanged at least through this year.
Single-family homebuilding, which accounts for the largest share of the housing market, fell 5.9% to a rate of 1.010 million units in January. Single-family starts raced to a 1.073 million-unit pace in December, the highest level since June 2007. Single-family housing starts accelerated in the Northeast and West, but tumbled in the Midwest and the populous South.
Single-family housing building permits increased 6.4% to a rate of 987,000 units in January, the highest level since June 2007.
Starts for the volatile multi-family housing segment rose 0.7% to a rate of 557,000 units last month. Permits for the construction of multi-family homes vaulted 14.6% to a rate of 564,000 units.