U.S. homebuilding surged to a 13-year high in December as activity increased across the board, suggesting the housing market recovery was back on track amid low mortgage rates, and could help support the longest economic expansion on record.
Housing starts jumped 16.9% to a seasonally adjusted annual rate of 1.608 million units last month, the highest level since December 2006. The percentage gain was the largest since October 2016. Data for November was revised higher to show homebuilding rising to a pace of 1.375 million units, instead of advancing to a rate of 1.365 million units as previously reported.
Economists polled by Reuters had forecast housing starts would increase to a pace of 1.375 million units in December.
Housing starts soared 40.8% on a year-on-year basis in December. An estimated 1.290 million housing units were started in 2019, up 3.2% compared to 2018.
Building permits fell 3.9% to a rate of 1.416 million units in December after hitting their highest level in more than 12-1/2 years in November.
The housing market is regaining momentum after the Federal Reserve cut interest rates three times last year, pushing down mortgage rates from last year’s multi-year highs. The 30-year fixed mortgage rate has dropped to an average of 3.65% from its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac.
Though a survey on Monday showed confidence among homebuilders dipped in January, it remained near levels last seen in mid-1999. Builders said they “continue to grapple with a shortage of lots and labor while buyers are frustrated by a lack of inventory, particularly among starter homes.”
The housing market accounts for about 3.1% of the economy. Residential investment rebounded in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession. It is expected to contribute to gross domestic product again in the fourth quarter.
Single-family homebuilding, which accounts for the largest share of the housing market, jumped 11.2% to a rate of 1.055 units in December, the highest level since June 2007. Single-family housing starts rose in the Midwest and the populous South. They, however, fell in the Northeast and West.
Single-family housing building permits slipped 0.5% to a rate of 916,000 units in December after rising for seven straight months.
Starts for the volatile multi-family housing segment vaulted 29.8% to a rate of 553,000 units last month. Permits for the construction of multi-family homes fell 9.6% to a rate of 500,000 units.