U.S. single-family starts surged in September, pointing to sustained housing market strength even as a drop in the construction of multi-family dwellings pushed overall home building activity to a 1-1/2-year low.

 

Groundbreaking on single-family housing projects, which accounts for the largest share of the residential housing market, jumped 8.1 percent to a 783,000-unit pace last month, the Commerce Department said on Wednesday. That was the highest level since February.

 

A tightening labor market, which is steadily pushing wages higher, as well as low mortgage rates are underpinning demand for housing. Single-family starts are also getting a boost from a chronic shortage of previously owned homes available for sale.

 

Overall groundbreaking activity, however, declined 9.0 percent to a seasonally adjusted annual pace of 1.05 million units last month, the lowest level since March 2015. It was dragged down by starts for the volatile multi-family segment, which plunged 38.0 percent to a 264,000-unit pace in September.

 

But with rents rising at their fastest pace in 10 years, last month's drop in multi-family starts is likely to be temporary.

 

U.S. financial markets were little moved by the data.

 

Economists polled by Reuters had forecast overall housing starts rising to a 1.18 million-unit pace in September. Last month's decline left overall housing starts in the third quarter well below their average for the second quarter.

 

That suggests residential construction remained a drag on gross domestic product in the third quarter after subtracting from output in the April-June period.

 

Overall home building activity is likely to rebound in the coming months, as permits for future construction surged 6.3 percent in September to their highest level since last November. Single-family permits rose 0.4 percent last month; approvals for multi-family units soared 16.8 percent.

 

Last month, single-family home construction jumped 20 percent in the Northeast. Starts in the South, which accounts for the bulk of home building, vaulted 12.1 percent.

 

Groundbreaking on single-family housing projects shot up 6.3 percent in the Midwest, but fell 2.2 percent in the West.