U.S. single-family housing starts are on the rise, though analysts caution the improvement may be artificial and not an indication prospective homebuyers are readily accepting higher mortgage rates.
Builders started 1.05 million single-family homes in December, up 3.3% from a revised November total of 1.016 million, according to figures released Friday by the U.S. Census Bureau and the Department of Housing and Urban Development.
Total starts hit 1.5 million, 15.8% above the revised November estimate and the highest rate since February. The substantial bump is mostly due to a 61.5% increase in multifamily starts, a category that tends to be volatile month to month, according to Wells Fargo.
The data is misleading because it was "flattered by favorable seasonal adjustment factors," according to Ryan Sweet, chief U.S. economist at research firm Oxford Economics.
"Therefore the improvement doesn’t signal to us that construction is weathering the rise in mortgage rates well," he said in a statement.
Mortgage rates have increased steadily in recent weeks and topped 7% for the first time since May, mortgage giant Freddie Mac said Thursday. Moreover, some analysts said consumers shouldn't expect borrowing costs to drop substantially anytime soon.
Higher borrowing costs are impacting the market as builders reported they've seen some prospective buyers cancel sales contracts due to the elevated mortgage rates, according to the National Association of Home Builders.
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Housing completions in December totaled 1.544 million, off 4.8 percent from November and down for the fourth consecutive month, the Census and HUD report shows.
Economist Sweet noted that overall housing starts are modestly ahead of permits, and that doesn't bode well for homebuilding in the immediate term. He said these latest government figures don't meaningfully change the 2025 residential investment risk that's already weighted to the downside.
A Wells Fargo report released in response to the government data also offered a muted forecast for residential construction.
"We expect homebuilding will remain relatively suppressed over the next couple of years as mortgage rates remain elevated, construction labor force growth slows and prices for building materials rise alongside new tariffs," the report stated.