Construction of new U.S. homes increased more than forecast in November and permits to build climbed to a 12-year high as the housing-market strengthened amid low mortgage rates, solid job growth, and optimistic buyers and builders.

Residential starts rose 3.2 per cent to a three-month high 1.37 million annualized rate after an upwardly revised 1.32 million pace in the prior month, according to government figures released Tuesday. Permits, a proxy for future construction, increased 1.4 per cent to an annualized 1.48 million pace.

Key Insights

• The data indicate residential construction may add to fourth-quarter growth after contributing in the previous quarter for the first time since the end of 2017. Demand has been fueled by mortgage rates near a three-year low as the job market remains resilient and wage gains help put money into the pockets of potential homebuyers.

• Construction of one-family homes rose to the highest since January, while permits for those dwellings increased to the highest level since July 2007.

• The positive reading corroborate other housing data. Homebuilder sentiment soared to a 20-year high in December. The latest consumer sentiment gauge from the University of Michigan also showed an index measuring home-buying conditions rose to a five-month high in December. Upcoming data this month are forecast to show existing-home sales, which comprise the vast majority of transactions, and new-home purchases were little changed in November.

• Groundbreakings for the multifamily category, which tends to be volatile and includes apartment buildings and condominiums, increased to a three-month high while permits also rose.

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• The median forecast in a Bloomberg survey of economists called for starts to rise to a 1.35 million pace from a previously reported 1.31 million in October.

• Two of four regions posted a gain in starts, led by a jump in the South to the fastest pace since March 2007. Starts in the West also advanced.

• About 188,000 homes were authorized but not yet started, the most since February, indicating a growing backlog for homebuilders.

• The report, produced jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, has a wide margin of error, with a 90-per-cent chance that the headline figure was between a 6.8-per-cent decline and a 13.2-per-cent increase.