New-home construction rebounded in October to the fastest pace in a year, partly reflecting recovery efforts in the hurricane-stricken South, government figures showed Friday. A pickup in permit applications for one-family dwellings indicates building will remain firm in coming months.

Residential starts rose 13.7% to a 1.29 million annualized rate (the estimate was 1.19 million) after an upwardly revised 1.14 million pace in the prior month. Single-family home starts rose 5.3% and multifamily jumped 36.8%. Permits, a proxy for future construction of all types of homes, rose 5.9% to a 1.3 million rate (the estimate was 1.25 million) from a 1.23 million pace.

The report showed building permits for single-family homes improved in October to an 839,000 annualized pace, the fastest since September 2007. Construction spending, which subtracted from gross domestic product in the second and third quarters, may add to U.S. economic growth in the final three months of 2017 on the heels of rebuilding efforts.

Home starts rise

New construction in the South rose 17.2%, the most since January, including the biggest gain for single-family starts since July 2014. Areas in the South were hit particularly hard in September by Hurricanes Harvey and Irma, which caused flooding and delayed beginning home construction. Activity typically rebounds in later months as rebuilding efforts begin in the affected regions.

A gauge of homebuilders' confidence surged in November to an eight-month high, indicating optimism about the outlook amid sustained demand, boosted by the steady job market and relatively low mortgage costs.

At the same time, the industry is dealing with a shortage of workers, higher materials prices and difficulty finding ready-to-build lots. Economists expect residential construction will keep expanding gradually.

Single-family home starts rose to a 877,000 rate, the fastest since February, from 833,000 the prior month. Groundbreaking on multifamily buildings, such as apartments and condominiums, climbed to an annual rate of 413,000; these monthly data typically experience large swings.

Three of four regions posted gains in starts, while new construction declined in the West. The report shows wide margin of error, with a 90% chance that the October figure was between a 3.2% rise and a 24.2% gain. The number of homes authorized but not yet started rose to 152,000 in October, most since June 2015. Houses under construction in October totaled 1.1 million, the most in a decade.

The report was released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

Bloomberg News