Home building permits soar 17%

NEW YORK (CNNMoney) -- Permits for housing construction soared in December, while initial construction of homes declined, the government reported Wednesday.

"Last month didn't look so hot for construction, but the future looks a lot better," said Mike Larson, a housing industry analyst for Weiss Research.

The number of permits for future housing construction surged to a seasonally adjusted annual rate of 635,000 last month, up 16.7% from the revised rate of 544,000 in November, the Commerce Department said.

That was the biggest monthly rise since June 2008 and leaves the total number of permits at the highest level since last March, said Larson.

The reading was much higher than expected, with economists surveyed by Briefing.com looking for 560,000 permits.

"We're seeing confidence creeping back into the market -- and while we're not ready to go nuts building yet, with jobs starting to improve I think that's going to be a catalyst to get construction going," said Larson.

Multi-family home construction -- which tends to be volatile month-to-month -- likely gave a boost to the overall number of permits. But single-family permits also remained solid, rising 5.5% last month and coming in at the highest level in several months, said Larson.

But the picture wasn't as bright for initial construction. Housing starts, the number of new homes being built, slumped 4.3% to a seasonally adjusted annual rate of 529,000 in December from a revised 553,000 in November.

Economists were expecting a rate of 550,000 housing starts.

Construction of single-family homes, viewed as a more stable indicator of new homebuilding activity than multi-family home construction, slipped 9% to a rate of 417,000.

New construction has remained sluggish for the past couple years, with starts hovering between the high 400,000s and 600,000s since late 2008. That compares to the peak of the market in 2005, when more than 2 million homes were built.

"It's been a sideways chop, but I think that sideways chop will continue pointing higher as the year goes on," said Larson. "Until you chew through that backlog of inventory, you're not going to have motivation to build more -- but that backlog is being worked on."

Larson said he expects housing starts to head into the 600,000 range again over the next year as the economy continues to recover and builders whittle down their inventories.

"Is 600,000 anything to write home about? No. But right now, I think builders have the once-burned, twice-shy mentality when it comes to real estate," he said. "I don't think we're going to see a huge rebound in construction any time soon, but the market is healing slowly."