Home construction last month increased 9.3% to a seasonally adjusted annual rate of 685,000 from October, the Commerce Department said Tuesday.
The results were better than forecast. Economists surveyed by Dow Jones Newswires expected housing starts would rise by 0.3% to an annual rate of 630,000.
The increase in November was driven by a 25.3% increase in multi-family homes with at least two units, a volatile part of the market. Construction of single-family homes, which made up about 65% percent of the market, rose only 2.3%.
Compared with the same month a year earlier, overall new-home starts in November were up 24.3%. They were still well below healthy levels, considered to be a pace of around 1 million to 1.5 million.
The Commerce data showed newly issued building permits, a gauge of future construction, rose 5.7% from a month earlier to an annual rate of 681,000, the highest since March 2010. Permits in November had been projected to fall 1.7% to an annual rate of 633,000.
The housing market is one of the key reasons economic growth in the U.S. has been sluggish. High unemployment, a glut of foreclosures and falling home prices have discouraged consumers from buying newly built homes. As a result, builders kept construction to a minimum during the housing bust.
However, the building industry has been getting a bit more optimistic of late. A survey this week showed builder sentiment climbed a third-straight month in December.
"As more people believe they can qualify for a mortgage on sensible terms, pent up demand seems to be emerging," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note to clients Monday.
Yet the National Association of Home Builders' housing market index, which came in at 21 in December, is far below the reading of 50 that would mean more builders view conditions as good rather than poor. The last time the gauge was in positive territory was April 2006.
Economists at Goldman Sachs predict U.S. home prices will fall by another 3% through the middle part of 2012 before stabilizing in 2013. After that, they predict prices will rise just 5% over the next five years.
While new-home sales are 8.9% above their level in October 2010, they amount to about a quarter of their peak before the bubble began deflating around five years ago. Sales are far below healthy levels, considered to be an annual rate of around 750,000.
The Commerce Department data showed that housing starts rose in three out of four U.S. regions. They surged 53.8% in the Northeast and 22.6% in the West and rose 4.1% in the South. They fell 18.2% in the Midwest.
Actual housing starts, calculated without seasonal adjustments, fell to 51,800 in November from a downwardly revised 53,100 in October. Lumber and commodities markets watch those numbers closely to gauge demand.