U.S. housing starts jumped up 2.8% in February to an annualized pace of 1.77 million units. Also, January’s 6.3% increase was revised up to a gain of 7.4%.

“After leaping in January, U.S. housing activity was expected to cool off in February. Instead, the U.S. housing market remained very solid with starts defying expectations,” says BMO Nesbitt Burns. “Given that most of the gains were in single-family starts, up 7.4% on the month, the figures are even stronger than they look.”

However, BMO Nesbitt says that higher mortgage rates are likely to weigh on housing activity in the coming year. Although building permits were also up in February, “indicating that the near-term outlook for housing remains healthy”.

RBC Financial Group economists suggests that, “homebuilding activity will continue to be strong for the next few months, bolstering the overall U.S. economy. We do expect housing activity to cool significantly by the end of the year as rates move higher but, in the meantime, as we enter a rising rate environment, fence-sitters will be pushed into the market and should provide near-term support.”

“The U.S. housing sector remained solid in February,” concludes BMO. “While rising mortgage rates will act as a dampener, the Fed’s decision to leave rates unchanged will block further deterioration in adjustable-rate mortgages.”