Economists polled by Reuters had forecast a slightly smaller gain.
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Housing is clawing back after it imploded during the 2007-2009 financial crisis and recession. It suffered a setback last year when interest rates spiked, but rates have been falling lately. The average 30-year mortgage rate dropped last week to its lowest level since June 2013.
New housing starts for single-family homes, the largest part of the market, rose 1.1 percent in September, while the more volatile multifamily homes segment jumped 16.7 percent.
Last month, permits advanced 1.5 percent to a 1.02 million-unit pace.