Construction on new homes in October rose to the highest level since July 2008, according to a report from the Commerce Department on Tuesday, adding credence to the housing market recovery continuing to gather steam.

Housing starts climbed by 3.6 percent to a seasonally adjusted annual rate of 894,000, a 42 percent increase over the same time in 2011.  Economists were expecting a drop in housing starts to a seasonal rate of 825,000 from the 872,000 rate that was estimated in September.

September starts were downwardly revised to an 863,000 yearly pace.

Economists were factoring the impact of superstorm Sandy the demolished portions of the East Coast and Mid-Atlantic states at the end of October.  However, there were negligible effects from the hurricane because it only damaged a relatively small portion of the country and hit so late in the month, according to government analysts.

Groundbreaker dropped by 6.5 percent in October in the Northeast, but that slack was more than offset by an 8.9 percent increase in the Midwest and a 17.2 percent rise in the West.  The impact of Sandy on the Northeast could be more dramatic in upcoming reports.  On the same token, housing starts next year could be positively impacted as the region rebuilds.

Residential construction is now up almost 42 percent versus October 2011 and homebuilding is projected to add to gross domestic product this year for the first time since 2005.  Meanwhile, however, housing starts are still only about 40 percent of the 2.27 million-unit peak in January 2006.

Tight lending is still weighing on consumers.  Starts on single-family homes, which make up the largest majority of the market, edged down by 0.2 percent in October to a yearly pace of 594,000 units.  Strength was shown in the rental space with a sharp rise of 11.9 percent in multi-family homes – such as apartments and condominiums – to an annual rate of 300,000.

On Monday, the National Association of Realtors said that sales of existing homes increased 2.1 percent in October to a seasonally adjusted rate of 4.79 million units, marking the second highest level in 2012.  A measure of homebuilder confidence also reported a sharp increase in November to its highest level in more than six years.

Applications for building permits, regarded as a barometer of future demand, slipped by 2.7 percent to an annual pace of 866,000 in October.  The drop is somewhat a matter of perspective as September’s rate was the highest in more than four years.  The pace set in October is the second best rate in the same time frame, excluding the prior month.