WASHINGTON (Reuters) – U.S. single-family homebuilding fell in January, but an easing in mortgage rates and improvement in homebuilder confidence suggested the recession-hit housing market was close to finding a floor.

Single-family housing starts, which account for the bulk of homebuilding, dropped 4.3% to a seasonally adjusted annual rate of 841,000 units last month, the Commerce Department said on Thursday. Single-family homebuilding tumbled 27.3% on a year-on-year basis in January.

Last month, single-family homebuilding plunged in the Northeast and West, with the latter likely depressed by flooding in California. Starts rose in the densely populated South as well as the Midwest.

Higher mortgage rates have pushed the housing market into recession. There are, however, signs that the worst of the housing market downturn is over. The sector has been the biggest causality of the Federal Reserve’s aggressive interest rate hiking campaign.

The 30-year fixed mortgage rate is averaging just above 6%, a sharp retreat from the average of 7.08% in early November, according to data from mortgage finance agency Freddie Mac. A survey on Wednesday showed confidence among homebuilders surged to a five-month high in February, though it remained at depressed levels. The rise in sentiment was the largest since June 2013.

Starts for housing projects with five units or more fell 5.4% to a rate of 457,000 units. Multi-family housing construction remains underpinned by demand for rental accommodation.

With both single- and multi-family homebuilding declining, overall housing starts dropped 4.5% to a rate of 1.309 million units last month, the lowest level since June 2020. Economists polled by Reuters had forecast starts would fall to a rate of 1.360 million units in December. Starts declined 21.4% on a year-on-year basis.

Single-family building permits dropped 1.8% to a rate of 718,000 units, while those for housing projects with five units or more rose 0.5% to a rate of 563,000 units. Overall, building permits gained 0.1% to a rate of 1.339 million units.

The number of houses approved for construction that are yet to be started increased 0.7% to 291,000 units. The single-family homebuilding backlog decreased 4.3% to 132,000 units, but the completions rate for this segment increased 4.4% to a rate of 1.040 million units.

The inventory of single-family housing under construction fell 1.1% to a rate of 752,000 units.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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