WASHINGTON (MarketWatch) — U.S. home builders sharply increased construction in June, according to estimates released Tuesday by the Commerce Department.

Housing starts rose 14.6% to a seasonally adjusted annual rate of 629,000, the highest level since January, the data showed.

Details underlying the June figures were also strong. There was a large increase in starts of multifamily units and a smaller gain in starts of single-family homes, the department reported.

Economists debated how seriously to take the increase.

“We are pleased but slightly baffled by this report,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Some welcomed the report as unabashed good news.

“We have been trying to call the bottom in the home construction sector for quite some time and I think we finally have one,” said Joel Naroff, president of Naroff Economic Advisors.

Others were more cautious, doubting whether the increase was the start of a sustained increase in starts.

The report was much better than expected. Economists surveyed by MarketWatch had been looking for a 3.6% increase to 580,000. May’s starts were revised lower to a 549,000 rate from 560,000 previously estimated, however. Read full MarketWatch economic calendar.

U.S. stocks rallied on the data, though there also were key earnings and developments in the euro-zone debt crisis to consider. The Dow Jones Industrial Average DJIA, +1.19% was recently up 137 points to 12,522.

Shares of builders including Lennar LEN, +3.43% advanced. See blog item on builders.

Economists at Capital Economics in Toronto, who had forecast a big jump in June starts, said the gain was catch-up after unusually severe weather had prevented builders from breaking new ground.

In addition, reconstruction from deadly tornadoes and floods was going to get underway, they said.

“Housing starts may continue to creep gradually higher from their still depressed levels. But the low rate of household formation, the high supply of existing homes and tough competition from foreclosed homes will mean that starts are unlikely to return to a normal level of around 1 million for another four years yet,” said Paul Dales, senior U.S. economist at Capital Economics, in a research note.

Housing starts in a range of 1 million to 1.5 million units would be considered a healthy market.

Given all the monthly volatility and revisions, starts have been fairly constant this year.

In the second quarter, starts averaged 576,000 compared with 582,000 in the first three months of the year.

This is close to the 587,000 starts in all of 2010, the second lowest reading on record. Read full government report.

Starts of single-family homes rose 9.4% to a 453,000 rate, while starts of multifamily units surged 31.8% to 170,000.

Analysts said this will be the new trend in home building as there are more renters than buyers in the market.

In the past year, starts are up 16.7%. Starts of single-family homes are up 0.4%, while starts of apartments and condos have jumped 104.8%.

Meanwhile, building permits rose 2.5% to a seasonally adjusted annual rate of 624,000 in June.

Permits for single-family homes rose 0.2% to a 407,000 rate. Many economists consider single-family permits to be the most important number in the government’s release.

Permits for apartments and condos increased 8.2% to 198,000.

The number of homes under construction rose 1% to a 419,000 annual rate, while the number of units completed in June fell 1.7% to an annual rate of 535,000.

On Monday, the National Association of Home Builders reported that the NAHB/Wells Fargo Housing Market Index, tracking builders’ level of confidence in the single-family market, rose two points, to 15, in July. The gain offsets much of June’s three-point dip, but it was still the ninth time out of 10 the index has held to the same three-point range.

The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors.

In most months, the government can’t be sure whether starts increased or decreased — in June, the standard error for starts was plus or minus 10.9% — and large revisions are common.

The standard error for monthly building permits data is much lower at plus or minus 1.3%.