The government also said April was much better for housing starts than first thought. The government revised the April starts to 744,000 up from an initially reported 717,000 and the fastest building pace since October 2008.
And builders are more optimistic about the next 12 months. They requested more permits to build homes, a gauge of future construction. Permits increased to a seasonally adjusted rate of 780,000 the most since September 2008.
"We have seen a huge jump," said Rene Oehlerking, marketing director for Garbett Homes, a Salt Lake City-based builder whose single-family sales in the first half of this year are up 30 percent from the last half of 2011 and 50 percent higher than in the first six months of last year. The company expects 2012 sales to approach 300 units. That's well below the 350-unit average Garbett posted as late as 2008, but almost double the number of homes it built in 2010.
The upswing is fueled by pent-up demand from homebuyers who sat on the sidelines worried about the economy and their jobs, and because they feared that falling home values might descend further, making their homes worth less than they paid for them, Oehlerking said.
"There seems to be consumer sentiment that the real estate market has reached bottom, meaning that the majority of consumers believes that prices are only going to go up again, and we think that's true," he said. "We think prices will not rise drastically, but we do think the bottom has been hit."
Even with the gains, the rate of construction and the level of permits requested remain roughly half the pace considered healthy. Yet the increases add to other signs that the home market may finally be starting to recover nearly five years after the housing bubble burst.
The mostly positive report contributed to a strong day on Wall Street.
Builders have grown more confident since last fall, in part because more people are expressing an interest in buying a home. Cheaper mortgages and lower home prices in many markets have made home buying more attractive. Many economists believe that housing construction could contribute to overall economic growth this year for the first time since 2005.
By region of the country, housing starts rose 14.4 percent in the West, but dropped in other parts of the country. The declines primarily reflected the weakness in apartment activity.
"Utah is truly up even more than the national numbers. We are up 19 percent this year over last, and last year we were doing quite well," said Clark Ivory, CEO of Ivory Homes, the biggest homebuilder in Utah.
Ivory pointed to Utah's lower unemployment rate, which at 6 percent is more than 2 percentage points below the national jobless rate. At the same time, job formation in Utah, while still below the long-term average, is a full percentage point above the U.S. rate.
"Utah's economy is healthier than most of the states," Ivory said. "But then the second issue is just that we didn't get as overbuilt. It hasn't taken us as long to work through the surplus inventory. We've gotten through in a shorter period of time, and that means the buyers are now back, looking for new product."
Still, the pace of home sales across the U.S. remains well below healthy levels. Economists say it could be years before the market is fully healed.
Many people are still having difficulty qualifying for home loans or can't afford larger down payments required by banks. Some would-be home buyers are holding off because they fear that home prices could keep falling.