By Lucia Mutikani

WASHINGTON (Reuters] – The U.S. increased its homebuilding to a record nine months in December due to a surge of multi-family housing construction. But, high material prices and doubled tariffs on Canadian softwood lumber may hinder the activity.

Commerce Department report Wednesday showed that construction permits for homes not yet built were at record levels last month. It highlights the difficulties faced by builders due to supply limitations. The rise in mortgage rates may also impact homebuilding.

Jennifer Lee, senior economist, BMO Capital Markets Toronto said, “Builders are happyly trying to satisfy demand. But supply problems and labor shortages slow them down.” This spring, softwood lumber duties will be a problem.

In November housing starts increased 1.4% to an adjusted seasonally annual rate of 1.702,000,000 units, the highest monthly level since March. From the previous reported 1.679million units, November’s data were slightly less accurate at a rate of 1.78 million units.

The 2021 housing starts were 1.595 millions, an increase of 15.6% from 2020.

Reuters polled economists to forecast that homebuilding starts will fall at a rate of 1.650million units. Volatility in multi-family housing was responsible for the increase in homebuilding, as starts of buildings with 5 units or more jumped 13.7% to 524,000 units. Strong demand exists for rental housing.

The largest proportion of housing starts was in single-family homes. They fell 2.3% to 1.172 million units. Unseasonably warm December conditions likely contributed to single-family homebuilding in the Northeastern and Midwest.

The National Centers for Environmental Information reported that December 2021 was the warmest recorded December.

An 8.2% drop in single-family start rates was reported by the South where most homebuilding takes place. The West also saw a decline in homebuilding.

Home building is uncertain this year. After a thorough review of the countervailing and antidumping duty orders, the United States nearly increased its duties on Canadian softwood lumber imported from Canada to 17.9% in November.

BACKLOG IN HEAVY QUANTITY

After talks collapsed on a new Canadian quota agreement, the Trump administration initially placed 20% tariffs on Canadian softwood lumber. However, the rate was reduced to 9% in December 2020. The administration of President Joe Biden had maintained these duties up to the November review by Commerce Department.

According to the National Association of Homebuilders (NAHB), the total cost of residential construction materials increased nearly 19% between December 2021 and now. The NAHB stated that increased material costs, as well as shortages, were increasing the average time it takes to build a single-family home.

The latest producer price data shows that softwood lumber for framing increased 24.4% after having risen 6.9% in November.

The rate at which houses are being built has risen 1.1% to 270,000 in one month. This is the most recent record.

The December rate for permits to future homebuilding rose 9.1%, reaching 1.873 Million units.

Building permits for five or more units soared by 19.9%, to a rate in excess of 675,000. Permits for single-family buildings rose by 2.0%, to an average of 1.128 millions units.

There is an acute shortage in homes for sale, which supports homebuilding. But rising mortgage rates, tighter supply and higher home prices may make it less affordable to buy a home.

Data from Mortgage Finance Agency showed that the 30-year fixed-rate mortgage reached 3.45% for the week ending January 13. This is an improvement from 3.22% the week before. Freddie Mac (OTC:).

The Federal Reserve has increased mortgage rates as the financial markets priced in an increase of interest rates as early as March, amid high inflation and labor market at or close to maximum employment.

Christopher Rupkey (chief economist, FWDBONDS New York), stated that mortgage rates are already on the rise and there have been several Fed rate hikes. This year could be a mixed bag for residential builders.

“It will interesting to see whether higher mortgage rates reduce the bubble in housing prices, because there will not be any new supply for at least one year.