The pace of U.S. housing construction slowed in February as permits, starts and completions fell, the government said on Thursday in a report pointing to moderation after a five-year rally in the housing market.

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The Commerce Department said February housing starts dropped 7.9 percent to a 2.120 million annual pace, still faster than expected, from an upwardly revised 2.303 million unit rate in January.

Economists had expected housing starts to slow to a 2.030 million unit pace in February.

New construction of single-family homes eased 2.3 percent to a 1.800 million unit pace, while multifamily construction plunged 30.4 percent to a 320,000 unit rate in February, the department said.

Starts fell 23.5 percent in the U.S. Northeast, the biggest drop since May 2001. Construction declined 11.2 percent in the South and 10.4 percent in the Midwest, but rose 7.9 percent in the West.

Permits for future groundbreaking, an indicator of builder confidence, fell 3.2 percent to a 2.145 million unit pace from January's revised 2.216 million unit pace. Economists had expected permits to ease more, to a 2.110 million unit pace in February.

With rising mortgage rates, the U.S. housing market has begun to cool after a years-long run that shattered sales and construction records, and sent prices soaring more than 55 percent on average across the country. Long-term fixed mortgage rates climbed in February, according to data from mortgage finance company Freddie Mac (FRE).

Economists expect the housing sector to continue to ease this year, but still see 2006 as the third best year for the market on record.

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