Permits for U.S. homebuilding neared a 3-1/2 year high in February, even as groundbreaking activity slipped, suggesting a nascent recovery in the housing market was still on track.
New building permits surged 5.1 percent to a seasonally adjusted annual rate of 717,000 units last month, the Commerce Department said on Tuesday. It was the highest rate since October 2008 and far exceeded economists' expectations for an advance to a 690,000-unit pace from January's 682,000-unit rate.
Housing starts slipped 1.1 percent to a rate of 698,000 units. January's starts were revised up to a 706,000-unit pace from a previously reported 699,000 unit rate.
Economists polled by Reuters had forecast housing starts little changed at a 700,000-unit rate. Compared to February last year, residential construction was up 34.7 percent, the biggest year-on-year rise since April 2010.
The data we see now indicates housing activity has stabilized and we could be in the early stages of improvement, said Gary Thayer, chief macro strategist at Wells Fargo Securities in St. Louis.
Green shoots are starting to emerge in the housing market, but an oversupply of unsold homes, which is depressing prices, remains a major hurdle, even as sales have picked up in recent months as job growth accelerated.
Residential construction is expected to add to economic growth this year for the first time since 2005. While home building accounts for about 2.5 percent of gross domestic product, it remains a major force in the economy. Economists estimate that for every one house built, about 2.5 jobs are created.
We are going to see housing (construction) add to GDP in 2012, said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. There is still a glut of existing homes in areas where there are a lot of foreclosures. But the supply of new homes is getting tighter so if there is sustained demand for them we could see construction continue.
Sentiment among home builders held at a near five-year high in March, a survey showed on Monday, and they were optimistic about sales over the next six months.
Housing starts last month were pulled down by a 9.9 percent drop in the construction of single-family homes - which account for a large portion of the market. Housing starts in the South rose to their highest level since October 2008.
Groundbreaking for multi-family housing projects soared 21.1 percent. This segment is benefiting from rising demand for rental apartments as falling house prices discourage some Americans from owning a home.
Permits to build single-family homes jumped 4.9 percent to a 472,000-unit pace - the highest since April 2010. Permits for multi-family homes increased 5.6 percent to a 245,000-unit rate.
In the Midwest, permits were the highest in almost two years, while in the Northeast, they were at levels last seen in December 2010.
Overall home completions increased 6.2 percent to 568,000 units.
(Additional reporting by Ellen Freilich and Richard Leong in New York; Editing by Andrea Ricci)