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Bump in December housing starts caps industry’s best year since ’07

New residential construction in the U.S. rose more than forecast in December, capping the best year since 2007 and signaling the industry will probably keep expanding this year.

Housing starts increased 4.4 percent to a 1.09 million annual rate, following the prior month’s 1.04 million pace that was also higher than previously estimated, a Commerce Department report showed Wednesday in Washington. The advance was driven by single-family projects, which climbed to an almost seven-year high.

An improving labor market, mortgage costs close to multi-year lows and rising consumer confidence will probably sustain demand for residential real estate. Faster wage gains and easier credit would help spur the housing recovery, benefiting sales and profits at builders such as Lennar Corp.

“The strength is where you’d like to see it, in single-family housing,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who had forecast starts would rise to 1.07 million. “It bodes well for residential real estate. It’s another thing going in the right direction for the economy.”

Permits, a proxy for future construction, declined 1.9 percent in December to a 1.03 million pace. It was depressed by a setback in multifamily projects, which are often volatile from month to month. Applications for single-family homes increased to a seven-year high.

“We think that the recent decline in mortgage interest rates, as well as improvements in the labor market, and household income are likely to continue supporting the recovery,” Blerina Uruci, an economist at Barclays Plc in London, said in an e-mail to clients.

Builders began work on 1.01 million houses in 2014, the most since 2007. The boom peaked at a three-decade high of 2.07 million in 2005, before plunging to a record-low 554,000 in 2009.

Construction of single-family homes climbed 7.2 percent to a 728,000 rate, the most since March 2008, from 679,000 the previous month.

Work on multi-family homes, such as townhouses and apartment buildings, decreased 0.8 percent to an annual rate of 361,000.

Three of four regions had an increase, with only the Midwest falling, the report showed.

Sentiment in the industry is hovering close to a nine-year high. While the National Association of Home Builders/Wells Fargo builder sentiment gauge fell to 57 in January from 58 the prior month, readings greater than 50 mean more respondents report market conditions are good, according to figures from the Washington-based group on Tuesday.

An improving labor market will help lift home sales and underpin building activity.

About 3 million more Americans found work in 2014, the most in 15 years, Labor Department figures showed.

Payrolls climbed by 252,000 workers in December after a 353,000 gain the previous month, and the jobless rate fell to 5.6 percent, the lowest level since 2008.

Advancing confidence also will help. The University of Michigan preliminary consumer sentiment index rose this month to the highest level since January 2004.

Borrowing costs have retreated in the past month.

The average 30-year, fixed-rate mortgage was 3.66 percent in the week ended Jan. 15, the lowest since May 2013, according to data from Freddie Mac in McLean, Va.