WASHINGTON (Reuters] – U.S. housebuilding rebounded strongly in February, as the cold weather drag eased. While permits dropped, they remained high, suggesting that a severe shortage of homes will still be a major factor supporting residential construction, even with rising mortgage rates.

The Commerce Department reported on Thursday that housing starts rose 6.8% to a seasonally adjusted annual pace of 1.769 millions units. The January data was updated to reflect a revised rate of 1.657million units, up from the previous reported 1.63 million units. Reuters economists had predicted starts rising to 1.690million units, according to Reuters.

Future homebuilding permits fell by 1.9% to an average rate of 1.859 millions units. In January, they rose to levels not reached since May 2006.

The Federal Reserve is tightening monetary policy to combat high inflation. Despite rising mortgage rates, the Federal Reserve will likely continue to support homebuilding by not having enough homes for sale. Wednesday’s 25-basis point increase by the U.S. central banks in its policy interest rates was the largest hike in over three years. In addition, the Fed laid out a plan that will aggressively reduce borrowing costs by 2023.

Due to a lack of supplies and expensive building materials, the backlog is large. On Wednesday, the National Association of Homebuilders reported that its gauge of confidence in single-family homebuilders fell to a low of six months after March. The gauge for future sales fell to its lowest level since June 2020.

Isfar Munir an economist, stated that while higher mortgage rates should negatively impact housing demand, the high number of homes already sold and not yet started should buffer housing starts. Citigroup New York. “These homes have to be built sometime in the future and will count for a housing beginning at that point.”

Last month, single-family homebuilding started rose 5.7%, to a rate at 1.215million units. The Northeast, Midwest, and South saw single-family homebuilding rise, while the West experienced a decline.

The rate at which single-family buildings permits fell 0.5% was 1.207 Million units.

Housing projects that have five or more units saw an increase in starts of 0.8%, to 501,000. This housing sector saw a 4.5% drop in building permits to the rate of 5997,000.