Housing starts rose 1.5% in January, according to Commerce Department data, to the highest level since October 2008.
On a seasonally adjusted basis, starts increased to 699,000 from 689,000 for December, which was revised upward by 32,000. January housing starts rose 9.9% from 636,000 a year earlier.
Analysts polled by Econoday expected housing starts to come in at 675,000 with a range of estimates between 640,000 and 736,000.
"January’s housing starts data support our view that homebuilders are shaking off the shackles of the last five years and are beginning to contribute to GDP growth," analysts at Capital Economics said. "That said, the housing sector is currently not big enough to set the economy alight."
In a joint release, the Census Bureau and Department of Housing and Urban Development said single-family starts fell 1% last month to a seasonally adjusted rate of 508,000 units, down from an upwardly revised 513,000 for December.
Construction of multifamily housing increased by 14% to an annualized rate of 175,000 in January.
Earlier this week, the National Association of Home Builders/Wells Fargo housing market index showed builder confidence at a four-year high in February.
Building permits in January inched higher by 0.7% to an annual rate of 676,000, up from a revised 671,000 the prior month. Permits rose 19% from 568,000 a year earlier.
New home construction dropped 22.5% in February 2011, which was the largest monthly decline since March 1984.