Construction Rises 5% in December

U.S. housing starts surged unexpectedly in December to their highest annual rate since mid-1986, the government said Tuesday, as the lowest mortgage rates in almost 40 years hooked buyers and lent vigor to one of the few healthy areas of the economy.

Permits to break ground, an indicator of builder confidence in future business, also jumped to the highest level in more than 16 years, the Commerce Department said.

Housing starts rose 5% to a seasonally adjusted annual rate of 1.84 million units last month from an upwardly revised 1.75 million rate in November, the Commerce Department said. Building permits leaped 8.2% to a seasonally adjusted annual rate of 1.88 million units from an upwardly revised 1.74 million in November.

Starts on single-family homes were at their highest since 1978; single-family permits set a record in December.

In terms of full-year figures, estimated housing starts at 1.71 million and estimated total permits at 1.73 million would be the highest levels since 1986, the government said.

Starts on single-family homes of 1.36 million for the year would be the highest level since 1978. Single-family housing permits of 1.32 million would be the highest since the government began keeping track in 1959.

Mortgage rates have dipped to levels not seen since 1965 and stock markets are in a three-year swoon. This has fueled home buying and building, making the sector one of the rare bright spots in a slumping U.S. economy.

Droves of homeowners have traded in mortgages for ones with lower interest rates, extracting cash from the rising value of their homes and pumping $132 billion into the U.S. economy in 2001 and early 2002, according to the Federal Reserve.

The boost in housing starts comes as uncertainty over the prospect of a war with Iraq has contributed to making what the Federal Reserve has called an economic “soft patch” look potentially more extensive.

Signs have emerged that housing may slow in the months to come. The number of people applying for a loan to buy a home or to refinance a mortgage slipped in early January, the mortgage bankers’ trade association reported last week. Also, home-builder optimism weakened slightly in January on the expectation of higher rates, the home builders’ trade association reported last week.