Residential construction picked up in September climbing to the second-highest level seen so far this year, a fresh sign that the housing market is helping to power an economic resurgence.

The Commerce Department (search) reported Friday that builders broke ground on 1.888 million housing units in September, representing a 3.4 percent increase over August's level. September's performance was stronger than the pace of 1.827 million units that economists had forecast.

Housing construction slowed a bit in August, after booming in July. That's when housing starts clocked in at a red-hot rate of 1.890 million units, a 17-year high, and the best performance this year.

Home builders, meanwhile, expressed optimism about sales prospects for October as well as for the next six months, according to a monthly survey by the National Association of Home Builders (search).

"The builders' outlook for single-family housing is very good, and we expect the improving economy to sustain robust levels of housing market activity even though mortgage interest rates are somewhat higher than the record lows that we saw earlier this year," said David Seiders, the association's chief economist.

After sliding to a record low of 5.21 percent in the middle of June, rates on benchmark 30-year mortgages marched sharply up, then down and now up again. Rates on 30-year mortgages now stand at 6.05 percent, Freddie Mac (search), the mortgage company said Thursday.

Even with the gyration in mortgage rates, homes sales are expected to set new record highs this year, economists say.

Amid signs that the economy is gaining traction, the Federal Reserve is widely expected to hold its main short-term interest rate at a 45-year low of 1 percent when it meets next on Oct. 28.

Economists believe the economy grew at a brisk pace of at least 5 percent in the third quarter and will expand at around a 4 percent pace in the current quarter.

Friday's report also showed the construction on single-family homes rose by 3.1 percent in September from the previous month to an annual rate of 1.520 million units. But construction of condos, apartments and other multifamily housing was flat in September at a pace of 321,000 units.

By region, builders broke ground on a total of 175,000 housing units at an annualized pace in the Northeast in September, a 15.1 percent jump from August's level. In the Midwest, housing construction rose by 8.1 percent to a pace of 429,000 units, the best showing since November 1978. Housing construction in the West grew by 4.2 percent to a rate of 442,000 units. But in the South, new residential projects dipped by 1.3 percent to a rate of 842,000 units.