U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2-year high as lower mortgage rates continue to boost the housing market and support the broader economy.

Housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units last month, with single-family construction racing to a 10-month high and activity in the volatile multifamily sector increasing for a second straight month, the Commerce Department said on Tuesday.

Data for October was revised higher to show homebuilding rising to a pace of 1.323 million units, instead of advancing to a rate of 1.314 million units as previously reported.

Economists polled by Reuters had forecast housing starts increasing to a pace of 1.345 million units in November.

Housing starts jumped 13.6% on a year-on-year basis in November. Building permits increased 1.4% to a rate of 1.482 million units in November, the highest level since May 2007.

The housing market is regaining momentum after the Federal Reserve cut interest rates three times this year, pushing down mortgage rates from last year's multi-year highs. A survey on Monday showed confidence among homebuilders jumped in December to the highest level since June 1999.

But the scope for strong gains in the sector, which accounts for about 3.1% of the economy, is limited as builders complained they are "still underbuilding due to supply-side constraints like labor and land availability."

In addition to land and labor shortages, mortgage rates have backed up in recent weeks after the Fed signaled further rate cuts were unlikely. The U.S. central bank kept rates steady last week and indicated borrowing costs could remain unchanged at least until through 2020.

The 30-year fixed mortgage rate has risen to 3.73% from a year-low of 3.49% in early September, but is still below its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac.

Residential investment rebounded in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession. It is expected to contribute to gross domestic product again in the fourth quarter.

Single-family homebuilding, which accounts for the largest share of the housing market, increased 2.4% to a rate of 938,000 units in November, the highest level since January. Single-family housing starts rose in the West and Northeast but fell in the Midwest and the populous South.

Single-family housing building permits rose 0.8% to a rate of 918,000 units in November, the highest since July 2007.

Starts for the volatile multi-family housing segment increased jumped 4.9% to a rate of 427,000 units last month. Permits for the construction of multi-family homes rose 2.5% to a rate of 564,000 units.