WASHINGTON (Reuters) - U.S. single-family homebuilding rebounded sharply in February, but rising construction costs from tariffs and labor shortages threaten the recovery.

Single-family housing starts, which account for the bulk of homebuilding, surged 11.4% to a seasonally adjusted annual rate of 1.108 million units last month, the Commerce Department's Census Bureau said on Tuesday. Data for January was revised to show homebuilding declining to a rate of 995,000 units instead of the previously reported pace of 993,000 units.

President Donald Trump this month imposed and later suspended a 25% tariff on most goods from Canada and Mexico, which would have pushed up U.S. duties on Canadian lumber to nearly 40%. But tariffs on Chinese goods were raised to 20% and levies on steel and aluminum went into effect this month.

A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market Index tumbled to a seven-month low in March, with builders saying they "continue to face elevated building material costs that are exacerbated by tariff issues," also noting "other supply-side challenges that include labor and lot shortages."

There have been anecdotes of workers not reporting for duty at construction sites for fear of deportation as the Trump administration cracks down on illegal immigration.

Undocumented immigrants account for 23% of construction labor, the Center for American Progress estimated in 2021.

Though the average rate on the popular 30-year fixed-rate mortgage has declined from 7% at the start of the year, economic jitters emanating from tariffs and an unprecedented campaign by the Trump administration to shrink the federal government through mass firings of public workers and deep spending cuts are discouraging some potential home buyers.

With new housing inventory at levels last seen since December 2007, builders might have no incentive to break new ground on single-family housing projects.

Permits for future construction of single-family housing fell 0.2% to a rate of 992,000 units in February.