Construction of new homes and apartments topped expectations by jumping 6.3 percent to its highest pace in almost two years, fresh evidence that the housing market is thriving while much of the economy slumps.

Builders began work on new homes at a seasonally adjusted annual rate of 1.678 million units last month, up from a revised 1.579 million rate in December, the U.S. Commerce Department said Tuesday. The pace drubbed the expectations of analysts polled by Reuters, who forecast January starts at a rate of 1.600 million.

The last time the pace of new starts was faster was in February 2000, when builders broke ground at a 1.745 million rate.

Low interest rate are a key reason that the housing and construction markets have remained stable even as the national economy has been suffering through a recession that began in March.

While the stock market has been volatile during the slump, housing values have seen solid appreciation, another factor motivating new-home buyers, builders say.

In January, construction of new single-family homes rose 3.5 percent to a rate of 1.35 million. That followed a 4.4 percent advance in December. Builders started work on 287,000 units, at a seasonally adjusted rate, of apartments, condos and other multifamily housing in January, an 8.3 percent increase from the previous month. In December, construction of multifamily housing fell by a sharp 20.4 percent.

By region, new housing construction rose by 8.7 percent in the Northeast to a rate of 162,000 in January. In the South, housing construction went up by 14.4 percent to a rate of 800,000. But in the West, housing construction fell by 3.6 percent to rate of 377,000; in the Midwest, it dipped by 0.3 percent to a rate of 339,000.

To prop up the economy, the Federal Reserve slashed interest rates 11 times last year, pushing the prime rate -- a benchmark for consumer and business loans -- down to its lowest level since November 1965.

Last month, the Fed opted to leave interest rates unchanged and cited signs of an economic recovery as the basis for its decision.

Many economists are hopeful that the Fed's aggressive credit easing will pave the way for a solid economic recovery in the second half of this year.

Even if that happens, many economists expect that mortgage rates -- now hovering below 7 percent -- will stay in the 7 percent range in the months ahead, helping to support the housing market this year.

Consumer confidence, jolted by the Sept. 11 terror attacks, has improved recently, a sign that consumers, the lifeblood of the economy, won't retrench in the coming months. Consumer spending accounts for two-thirds of all economic activity in the United States.

"Home builders still have a very positive outlook on the market for new single-family homes, thanks to continuing low interest rates, improving consumer confidence and other solid market fundamentals," said Gary Garczynski, president of the National Association of Home Builders.

Reuters and the Associated Press contributed to this report.