U.S. builders ramped up home construction in December, led by a surge of apartment building, while single-family houses lagged.
Housing starts jumped 11.3 per cent last month, to a seasonally adjusted annual rate of 1.2 million, the Commerce Department said Thursday . The figures are volatile month to month: Starts plummeted in November after a big gain in October. Apartment construction soared 53.9 per cent last month, while single-family housing starts fell 4 per cent.
The figures cap a solid 2016 for home construction: Developers started work on the most new houses and apartments since 2007, the year the Great Recession began. Single-family home building increased 3.9 per cent and apartment building was 10.3 per cent higher.
The report adds to other recent evidence that home sales and construction have largely weathered an increase in mortgage rates since the fall. Steady job creation and some early signs of wage gains have made it possible for more Americans to afford to buy.
Still, the housing market faces challenges this year that could thwart further growth. The Federal Reserve may continue pushing up the short-term interest rate it controls, leading to higher borrowing costs. And with relatively few homes on the market, buyers have fewer choices, pushing up prices.
Building permits, a sign of future construction, slipped 0.2 per cent in December. Permits for single-family homes rose, however, while apartment permits dropped.
Higher mortgage rates may weigh on home purchases in the coming months. Sales of existing homes reached the highest level in nearly a decade in November, yet fewer Americans signed contracts to buy homes that month, suggesting sales could soon slow. Signed contracts are usually followed a month or two later by a final sale.
Mortgage rates have actually dropped for the past two weeks, after increasing quickly after the election on anticipation of faster growth and inflation. The average 30-year fixed rate mortgage fell to 4.12 per cent last week, according to mortgage buyer Freddie Mac, down from 4.2 per cent the previous week.
Still, that’s far higher than the 3.65 per cent average rate for all of 2016.