(March 19): New US home construction bounced back sharply last month, indicating builders are benefitting from slightly more favourable mortgage rates and a dearth of existing houses for sale.

Residential starts increased 10.7% in February, the largest since May, to a 1.52 million annualised rate, government data showed Tuesday. The median estimate of economists surveyed by Bloomberg called for a 1.44 million pace.

Building permits, a proxy for future construction, rose to a 1.52 million rate, the fastest since August. Both permits and starts figures for January were revised higher.

Single-family home construction increased to a two-year high, while multifamily home starts rose 8.3% after a steep drop the prior month.

After a January slump in starts, which was the largest since May 2022, the rise adds to evidence the housing market is on the mend. Builders are taking advantage of a limited resale inventory, though a bigger decline in mortgage rates would help bring more prospective buyers off the sidelines and provide a bigger boost for the industry.

Home-financing costs may retreat later this year when the Federal Reserve is expected to start reducing interest rates. Economists widely see policymakers leaving the benchmark interest rate unchanged at the conclusion of their two-day meeting on Wednesday.

Figures on Monday showed homebuilder sentiment climbed to an eight-month high in March as demand picked up. With sales firming, less than a quarter of builders in the National Association of Home Builders/Well Fargo report said they reduced prices to lure buyers, the smallest share since July.

Authorisations for one-family homes increased to the highest level since May 2022, and permits for multifamily construction also rose.

The government report showed housing starts advanced sharply in the Midwest after a winter weather-related plunge a month earlier. Construction in the South rose to the fastest annual pace in nearly two years.

The number of single-family homes completed surged by the most since June 2010 after slumping a month earlier.