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WASHINGTON (Reuters) - U.S. homebuilding permits touched their highest level in nearly 4-1/2 years in November, pointing to strength in the housing market, even though groundbreaking activity dropped.
The Commerce Department said on Wednesday building permits increased 3.6 percent to a seasonally adjusted annual rate of 899,000 units, the highest since July 2008. That was well above economists' expectations for an 875,000-unit pace.
In contrast, construction starts fell 3.0 percent to an 861,000-unit pace, but that followed three straight months of solid gains and a three-month moving average showed a firming trend.
"The trend is definitely up. Housing is going to make a small contribution to economic growth in 2012 and I would expect that home building will continue to improve through 2013," said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.
U.S. financial markets were little moved by the data as attention remained fixed on budget talks in Washington. Stocks were little changed, while prices for U.S. Treasury debt were trading higher. The dollar was broadly weak.
The housing market, one of the few bright spots in the economy, has regained some footing after a historic collapse that ignited the worst recession since the Great Depression.
The recovery is broad-based, with sales, home building and prices all showing gains. A report on Tuesday showed builders' confidence in the market for new single-family homes reached its highest level this month since April 2006.
While last month's decline in groundbreaking prompted some economists to trim already meager growth forecasts for the fourth quarter, homebuilding is expected to add to economic growth this year for the first time since 2005.
In the 12 months through November, housing starts were up 21.6 percent, while permits had gained 26.8 percent.
"More and more, the recovery is widespread. It is nice to see it happen," said Barry Rutenberg, a home builder from Gainesville, Florida, and chairman of the National Association of Home Builders.
Mortgage rates remain near record lows, helped by a program launched by the Federal Reserve in September to purchase mortgage-backed securities.
A separate report from the Mortgage Bankers Association showed demand for home loans fell last week as mortgage rates ticked higher. Applications for loans to buy a home had risen in each of the prior five weeks.
Though residential construction only accounts for about 2.5 percent of gross domestic product, economists estimate that for every single-family home built at least three full-time jobs are created.
Last month, permits to build single-family homes dipped 0.2 percent to a 565,000-unit pace. Permits for multi-family homes increased 10.6 percent to a 334,000-unit rate, reflecting buoyant demand for rental apartments.
"Longer term, we may have seen a shift in psychology, which is putting an extreme pressure on builders to provide multi-family homes. Young families are no longer clamoring to buy," said Lindsey Piegza, economist at FTN Financial in New York.
The step down in residential construction last month reflected a 5.2 percent drop in the Northeast, which was slammed by Superstorm Sandy in late October. Starts also tumbled in the West, where they were down 19.2 percent.
Last month, groundbreaking for single-family homes, the largest segment of the market, fell 4.1 percent to a 565,000-unit pace. Starts for multi-family homes slipped 1.0 percent to a 296,00-unit rate.
Economists said the pace of home construction was not keeping up with the bounce in household formation from recession lows, creating potential for upward momentum.
"We haven't been putting up enough housing to keep up with the expanding population. Given that, I would expect to see further improvement in home building in 2013," said PNC Financial's Faucher.
Additional reporting by Ellen Freilich and Richard Leong in New York; Editing by Andrea Ricci and Tim Ahmann