U.S. builders broke ground on new homes at a faster-than-expected pace in December, closing out the best year for housing since 1978 on an upbeat note, a government report showed on Wednesday.
The Commerce Department said December housing starts rose 1.7 percent to a seasonally adjusted 2.088 million annual rate, the quickest pace since February 1984.
The gain defied Wall Street analysts’ expectations for a decline in starts and was led by a gain in multi-family dwellings. Single-family housing starts actually dipped slightly from the November rate.
November starts were revised slightly lower, to a 2.054 million rate from the initially reported 2.070 million pace.
However, in a sign the market is not yet ready to retreat, building permits -- a gauge of future residential construction plans -- also posted a gain in December, rising 3.3 percent to a 1.924 million rate.
“Very low interest rates, improving economy, improving labor market and that bodes well for housing,” said Rick Egelton, deputy chief economist with BMO Financial Group in Toronto.
Financial markets showed little initial reaction.
The housing market was one of the U.S. economy’s strong spots in 2003, as bargain-basement mortgage rates lured buyers into the market and led many home owners to refinance their loans and free up cash. The 1.848 million homes started in 2003 were the most since 1978, the Commerce Department said.
The record for housing starts was set in 1972, when they totaled 2.357 million, according to the Commerce Department.
Other reports have shown the housing market remains in good shape. On Tuesday, the National Association of Home Builders said its monthly index tracking sentiment on sales and buyer traffic fell to 68 from in January from 70 in December, well above the break-even level of 50.
Even as the U.S. economy has shown signs of picking up speed, long-term interest rates have yet to rise sharply. The Mortgage Bankers Association on Wednesday said its monthly index of applications for home mortgages hit a record last week, after the average rate on a 30-year mortgage fell to 5.55 percent, the lowest since July.
The Federal Reserve will meet next week to mull rate policy. Most analysts expect the U.S. central bank to remain on the sidelines, leaving short-term borrowing costs untouched at 45-year lows until it is convinced the recovery has become self-sustaining.