U.S. housing starts rebounded strongly in June and building permits surged to a near eight-year high, pointing to a rapidly strengthening housing market.
Groundbreaking increased 9.8 percent to a seasonally adjusted annual pace of 1.17 million units, the Commerce Department said on Friday.
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May's starts were revised up to a 1.07 million-unit rate from the previously reported 1.04 million-unit pace.
Economists polled by Reuters had forecast housing starts increasing to a 1.11 million-unit pace last month.
Rising household formation as a tightening labor market encourages young adults to leave parental homes is boosting demand for housing, especially apartments.
Permits for future home construction increased 7.4 percent to a 1.34 million-unit rate, the highest level since July 2007. Permits have been above a 1 million-unit pace since July.
A survey on Thursday showed builders' confidence held at a more than 9-1/2-year high in July, suggesting that both permits and groundbreaking have scope to rise further. Economists anticipate that the housing market will mitigate the drag on the economy from a struggling manufacturing sector.
While groundbreaking for single-family homes, which account for the largest share of the market, slipped 0.9 percent to a 685,000 unit pace, that reflected a big drop in the Northeast.
Single-family starts in the South, where most of the home building takes place, jumped to their highest level since March 2008.
Starts for the volatile multifamily segment surged 29.4 percent to a 489,000 unit rate. Groundbreaking for buildings with five units or more increased to the highest level since November 1987.
Single-family building permits rose 0.9 percent. Multi-family building permits soared 15.3 percent. Permits for buildings with five units or more increased to their highest level since January 1990.