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A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012.JONATHAN ERNST/Reuters

The pace of U.S. home resales rose in August to its fastest in over two years and groundbreaking on new homes also climbed, hopeful signs that a budding housing market recovery is gaining traction.

The National Association of Realtors said on Wednesday that existing home sales increased 7.8 per cent last month to an annual rate of 4.82 million units last month.

That was the fastest annual rate since May 2010 and well above analysts' expectations of a 4.55 million-unit rate.

While the broader U.S. economy appears to be losing steam, housing has gained traction and has become a relative bright spot.

"Today's data are another indication of improvement in the U.S. housing market which, for really the first time post-recession, is becoming a positive for economic growth," said Andrew Grantham an economist at CIBC World Markets in Toronto.

Nationwide, the median price for a home resale rose to $187,400 (U.S.) in August, up 9.5 per cent from a year earlier as fewer people sold their homes under distressed conditions.

The nation's inventory of homes – those for sale on the market – rose 2.9 per cent during the month to 2.47 million.

The price increase is measured against August 2011, and since then distressed sales have fallen to 22 per cent of total sales from 31 per cent. Distressed sales also fell in August of this year compared to the prior month.

U.S. stocks edged higher following the existing home sales data, while prices of U.S. government debt trimmed gains.

A separate report from the Commerce Department showed U.S. housing starts rose last month to a seasonally adjusted annual rate of 750,000 units. That was less than expected, as groundbreaking on multifamily home projects fell. Still, the trend in housing starts continued to point to recovery and many economists think home building will boost economic growth this year for the first time since 2005.

Starts were up 2.3 per cent from the prior month. July's starts were revised to show a 733,000-unit pace instead of the previously reported 746,000.

Economists polled by Reuters had forecast groundbreaking in residential construction rising to a 765,000-unit rate. Compared to August last year, residential construction was up 29.1 per cent.

"We continue to see positive signs emerging from the housing market, suggesting that the entire market, not just individual submarkets, are stabilizing and steadying themselves for future growth," said John Tashjian, principal at Centurion Real Estate Partners in New York.

Housing starts are now a third of their 2.27 million-unit peak in January 2006. The housing market, the Achilles heel of the recovery from the 2007-09 recession, is on the mend.

Sales have been creeping up and the house price decline has bottomed, with a tightening supply of properties on the market raising prices in some metropolitan areas. In addition, home-builder sentiment touched a six-year high in September.

Though residential construction accounts for only about 2.5 per cent of GDP, economists estimate that for every new house built, at least three new jobs are created.

The Federal Reserve moved last week to bolster the economy, announcing it would buy $40-billion in mortgage-backed securities per month until the outlook for employment improved significantly.

The Fed said it hoped the purchases would in part help to unstick a housing sector that Fed Chairman Ben Bernanke called "a missing piston" in the U.S. recovery.

Analysts believe the third round of bond purchases, dubbed QE3 on Wall Street, will support the housing market.

"Now it's up to the banks to stop sitting on their hands and start lending. While rates are at historical lows, borrowers still have a very difficult time accessing the mortgage markets," said Mr. Tashjian.

A separate report from the Mortgage Bankers Association showed applications for loans to buy homes fell last week, but record low mortgage rates boosted demand for refinancings.

Last month, groundbreaking for single-family homes, the largest segment of the market, rose 5.5 per cent to a 535,000-unit pace – the highest level since April 2010. Starts for multi-family homes fell 4.9 per cent.

Building permits slipped 1 per cent to a 803,000-unit pace in August after surging the prior month to the highest in four years. July's permits were unrevised at 811,000 units. Economists had expected permits to fall to a 796,000-unit pace.