New home construction increased to more than a one-year high in January, boosted by a rebound in the building of single-family housing units, and further gains are likely as building permits soared to their highest level since 2007.
Housing starts jumped 9.7 percent to a seasonally adjusted annual rate of 1.326 million units, the Commerce Department said on Friday. That was the highest level since October 2016 and followed an upwardly revised sales pace of 1.209 million units.
Economists polled by Reuters had forecast housing starts rising to a pace of 1.234 million units last month after a previously reported rate of 1.192 million units.
Building permits surged 7.4 percent to a rate of 1.396 million units in January, the highest level since June 2007.
Demand for housing is being driven by a tightening labor market, but rising mortgage rates and house prices could slow the momentum. Despite the unemployment rate being at a 17-year low of 4.1 percent, annual wage growth has not exceeded 3 percent.
In contrast, the annual house price increase topped 6 percent in November. The 30-year fixed mortgage rate rose to an average of 4.38 percent this week, the highest level since April 2014, from 4.32 percent in the prior week, according to mortgage finance agency Freddie Mac.
Mortgage rates are rising in tandem with U.S. government bond yields on worries about rising inflation.
Single-family homebuilding, which accounts for the largest share of the housing market, increased 3.7 percent to a rate of 877,000 units in January. Single-family home construction rose in the South and Northeast, but fell in the Midwest and West.
Single-family home permits fell 1.7 percent in January. A survey on Thursday showed confidence among homebuilders hovering at lofty levels in February. Builders expected an increase in sales over the next six months.
Starts for the volatile multi-family housing segment surged 23.7 percent to a rate of 449,000 units in January. Permits for the construction of multi-family homes soared 26.5 percent.