Construction on new homes in the United States roared past expectations to nearly a six-year high in November, signaling resurgence of momentum in the industry and perhaps giving the Federal Reserve one more reason to start scaling-back its stimulus package.

First Time Housing Have Annualized Rate Above 1 Million Since Feb. 2008

The Commerce Department reported Wednesday that housing starts climbed 22.7 percent in November to a seasonally adjusted annual rate of 1.091 million from October’s revised estimate of 889,000. Economists expected a rise to 952,000.

It was the first time that the annualized rate had crossed one million since March (1.005 million) and the highest level since February 2008. The annualized rate hadn’t broken 900,000 since May (919,000).

The number of starts can be volatile because of whipsaws in the multi-family segment, but November was especially impressive because the surge was due in large part to the single-family segment, which is the largest portion of new construction. Groundbreaking for single-family homes increased 21 percent to an annual rate of 727,000 from 602,000 in October. That is the highest level since March 2008.

Multi-family starts also saw a sharp spike, rising 27 percent to a 354,000 annual rate from 281,000 a month earlier.

November Building Permits Slightly Down

Building permits, a barometer of future construction, edged down to a pace of 1.007 million in November after jumping 6.7 percent in October to 1.039 million. The rate was anchored down by an 11-percent decline in permits for multi-family homes as permits for single-family homes rose 2 percent. Even with the slight decline, permits were still at the second-highest level this year.

Housing starts were gaining steam early in 2013, but a run-up in interest rates began in May in anticipation of the Federal Reserve cutting its stimulus package, which includes buying $85-billion worth of Treasuries and mortgage-backed securities every month and keeping its key lending rate at historic lows. Rates on a 30-year mortgage are currently up about one percent from May.

New Home Costs Increasing

At the same time, the cost of a new home has been on the rise, adding to a slowdown in new builds. The S&P Case-Shiller U.S. National Home Price Index was up by 3.2 percent in the third quarter from the second quarter and 11.2 percent in the last year, marking the best performance since the markets were exploding in 2006.

Further, builder confidence has also been strengthening. Yesterday, the National Association of Home Builders/Wells Fargo builder sentiment index was reported at 58 in December, equaling an eight-year high.

Taper Coming Soon?

The Federal Open Market Committee is concluding their final meeting of 2013 today with Wall Street’s ears turned toward how the Fed is going to interpret a bevy of upbeat economic data with regards to slowing its stimulus efforts. A strong housing market plays an integral role in the overall health of the economy as it can create jobs and greater demand for a plethora of products. The Fed has said that it intends to start tapering QE3 soon, with some economists thinking that this will be the day of the official announcement of a date. Given the recent positive economic data, it would not come as a shock to hear that tapering is beginning if it weren’t for inflation still remaining far below the Fed’s target of 2 percent, which gives the main bank a bit of time before making a decision.

A reasonable guess would be that the Fed will start scaling back asset purchases by about $10 billion per month come the first of the year and then play additional reductions by ear based upon data in upcoming months. Like it or not, the markets need it to start moving on data, not speculation about moves of the Federal Reserve.