The Commerce Department said October housing starts jumped 2.9 percent to an annualized rate of 1.960 million units, a high not seen since January 1986. At the same time, permits to build homes rose 5.2 percent, to an annualized 1.973 million units, a pace not seen since February 1984.
Economists polled by Reuters had expected overall housing starts to drop to an annualized 1.850 million unit rate from September's 1.905 million unit rate.
"It is certainly a positive force. It leads you to believe we will get a contribution (to gross domestic product) from housing in the fourth quarter," said Michael Moran, chief economist at Daiwa Securities America Inc.
Permits to build single-family homes hit a record pace of 1.535 million units last month, and the appetite for newly constructed homes appears to be intact, as indicated by a rise in applications for home loans last week, the Mortgage Bankers Association said on Wednesday.
Housing has buttressed the overall economy, largely because low interest rates have fueled demand for homes even though the employment picture for many Americans, particularly those in manufacturing, has been cloudy.
Demand for home loans has remained strong even though mortgage rates are up from record lows. That is because rates are still low on a historical basis and more borrowers have opted for adjustable rate loans which, initially, offer lower interest rates.