Housing starts reached an annual rate of 954,000 last month, jumping 12.1% from November and up 36.9% from December 2011. “Weather played a role,” wrote Patrick Newport, U.S. economist at IHS Global Insight, in a release discussing the numbers. “December 2012 was the 10th warmest December on record for the lower 48 states, dating back to 1895. With demand picking up and inventories of new homes at near record lows, builders took advantage of the mild December temperatures by starting new homes they planned to start at a later date.” Hurricane Sandy also had an impact, as indicated by the 21% jump in starts in the Northeast.

Housing permits were up 0.3% to a 903,000 annual rate in December, with single-family permits jumping 1.8%. The increase may not be as flashy as the unexpected spike in housing starts, but as permits are forward looking, better measured, and less affected by weather, their steady rise is a healthy indication of an ongoing housing recovery.

Housing starts are still below historical levels. Looking back, builders have started construction on an average of 1.5 million new homes a year since 1959. In 2012, only 780,000 new homes were started. Nevertheless, 2012 also was the third straight year of gains for starts and permits, and builder confidence is at a six-year high.

“This year will be better than last for housing starts,” according to Newport. “Interest rates are rock-bottom low, inventories of new and existing homes are lean, and the economy is creating jobs. Our latest forecast is for starts to rise to 970,000 in 2013.”

See the Census Bureau's full report on housing starts and permits in December.