US builders started work on homes in December at the fastest pace since the summer of 2008.
They finished 2012 as the best year for residential construction since the early stages of the housing crisis.
The Commerce Department said today that builders broke ground on houses and apartments at a seasonally adjusted annual rate of 954,000.
That is 12.1% higher than November's annual rate and nearly double the recession low reached in April 2009.
Steady growth in home construction is the latest sign of a housing recovery that is gaining strength. For the year, builders started work on 780,000 homes. That is still only half of what is consistent in healthier markets.
But it is an increase of 28.1% from the 608,800 homes started in 2011. And it is the most since 2008 - shortly after the housing market collapsed in late 2006 and 2007.
In December, the pace of single-family home construction, which makes up two-thirds of the market, increased roughly 8%. Apartment construction, which is more volatile, surged 23%. Applications for building permits, a sign of future construction, inched up to a four and a half year high.
Steady job gains, record-low mortgage rates and a tight supply of new and previously occupied homes available for sale have the housing market recover.
Confidence among US homebuilders held steady in January at the highest level in nearly seven years. But builders are feeling slightly less optimistic about their prospects for sales over the next six months, according to a survey released earlier this week.
The survey came at a time of improving fortunes for homebuilders, many of which have seen sales improve over the past year amid the best market for newly built homes since the housing boom in the middle of the last decade.
In November, sales of previously occupied homes rose to their highest level in three years, while new-home sales reached a two and half year high. Those factors have helped make homebuilders more confident and spurred new home construction.
But homebuilders' are still warily watching the current standoff in Washington between President Barack Obama and Congress over several approaching budget deadlines, including the need to boost the nation's $16.4 trillion borrowing limit.
Though new homes represent less than 20% of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.
New unemployment claims at five year low
Meanwhile, the number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week, a hopeful sign for the sluggish labour market.
Other data showed a surge in residential construction last month, suggesting the housing market was now positioned to support the economy's recovery this year.
Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said.
It was the largest weekly drop since February 2010.
While last week's decline ended four straight weeks of increases, it may not signal a material shift in labour market conditions as claims tend to be very volatile around this time of the year.
This is because of large swings in the model used by the department to iron out seasonal fluctuations.
The four-week moving average for new claims, a better measure of labour market trends, fell 6,750 to 359,250, suggesting some improvement in underlying labour market conditions.
