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In this Friday, Nov. 16, 2012, photo, construction worker Miguel Fonseca carries lumber as he works on a house frame for a new home in Chula Vista, Calif.

Gregory Bull/AP

U.S. permits for future home construction touched their highest level in nearly 4-1/2 years in November, pointing to underlying strength in the housing market, even though starts dropped after three straight months of strong gains.

The Commerce Department said on Wednesday building permits increased 3.6 per cent to a seasonally adjusted annual rate of 899,000 units, the highest since July 2008.

Economists polled by Reuters had expected permits, which lead starts by at least a month to rise to an 875,000-unit pace last month from 868,000 units in October.

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Though groundbreaking fell 3.0 per cent to an 861,000-unit pace, that followed three consecutive months of solid gains. The three-month moving average of starts, which irons out month-to-month volatility, showed the firmer trend remained in place.

"There is an upward grind in housing. That sector should probably add a bit to growth in a pretty sluggish environment next year," said Cary Leahey, an economist at Decision Economics in New York.

The housing market has regained some footing after a historic collapse that pushed the economy into its worst recession since the Great Depression.

The recovery is broad-based, with sales, home building and prices all showing gains. That firming trend was reinforced by a report on Tuesday showing builders' confidence in the market for new single-family homes rose this month to its highest level in more than 6-1/2 years.

Homebuilding is expected to add to gross domestic product growth this year for the first time since 2005.

Mortgage rates remain near record lows as the Federal Reserve pushes ahead its aggressive monetary policy stance to boost the sluggish economy.

A separate report from the Mortgage Bankers Association showed demand for home loans fell last week after rising in each of the prior five weeks.

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Though residential construction only accounts for about 2.5 per cent 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 per cent 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-per-cent drop in the Northeast, which was slammed by superstorm Sandy in late October. Starts also tumbled 19.2 per cent in the West.

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 4.1 per cent to a 565,000-unit pace. Starts for multi-family homes slipped 1.0 per cent to a 296,00-unit rate.

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