Home builders, aided by low mortgage rates and mild weather, broke ground in January on the largest number of projects in nearly two years, raising hopes that the housing market will help pull the economy out of recession.
Construction of new homes and apartments climbed last month to a seasonally adjusted annual rate of 1.68 million units, a 6.3 percent increase over December, the Commerce Department said yesterday.
The bigger-than-expected increase pushed housing construction to its highest level since February 2000 and followed a 2.3 percent decline in December.
Low mortgage rates have helped the housing and construction markets thrive even while the country has suffered through a recession that began in March 2000, analysts said.
Another factor motivating new-home buyers is solid appreciation of housing values, particularly as the stock market has taken a hit from the ailing economy, economists said. Mild weather also played a role in last month’s advance.
“It looks as if housing will help the economy escape the recession,” said economist Joel Naroff, president of Naroff Economic Advisors.
“There have been fears that the housing market was artificially hyped by the incredibly low mortgage rates in the fall, and that once rates rose, construction would falter,” Mr. Naroff said. “While mortgage rates are up, they have not risen to the point where the residential real-estate market has started to hurt.”
Rates on 30-year fixed-rate mortgages dropped to 6.45 percent in early November, their lowest point since Freddie Mac began conducting its nationwide survey in 1971.
While rates have moved higher since then, analysts believe mortgage rates this year will be fairly stable hovering in the 7 percent range and will continue to support the housing market. Last week, Freddie Mac reported that the average rate on 30-year mortgages dipped to 6.86 percent.
Construction of single-family homes rose 3.5 percent in January to a rate of 1.35 million, on top of a 4.4 percent increase in December. Construction of apartments, condos and other multifamily housing rose to a rate of 287,000 units in January, an 8.3 percent increase from the previous month. In December, multifamily housing construction plunged by 20.4 percent.
To lure prospective buyers, builders are continuing to offer incentives, such as including some options in a house at a discount or at no charge, and offering to pay for buyers’ closing costs, analysts said.
By region, housing construction rose 8.7 percent in the Northeast to a rate of 162,000 in January. In the South, housing construction went up 14.4 percent to a rate of 800,000. But in the West, housing construction fell 3.6 percent to rate of 377,000; in the Midwest, it dipped 0.3 percent to a rate of 339,000.
Building permits, a good barometer of current demand, rose 3.1 percent in January to a rate of 1.71 million units.