WASHINGTON (AP) -- Spending on U.S. construction projects rebounded in February, helped by a surge in home construction, which rose to the highest level in more than four years.
Construction spending rose 1.2 percent overall in February compared to January, when construction had dropped 2.1 percent, the Commerce Department reported Monday.
Spending rose to a seasonally adjusted annual rate of $885.1 billion, which was 7.9 percent higher than a year ago.
The advance was led by a 2.2 percent rise in private residential construction, which climbed to an annual rate of $303.4 billion, the best showing since November 2008. Private nonresidential construction was up 0.4 percent while public construction rose 0.9 percent.
Construction spending is expected to keep growing this year, fueled by more homebuilding and broader improvement in the economy.
For all of 2012, construction spending increased 9.8 percent, marking the first annual gain after five straight years of declines. Construction spending is still well below healthy levels. But it is slowly coming back, led by a recovery in housing that looks to be strengthening this year.
Steady hiring and nearly record-low mortgage rates have encouraged more Americans to buy homes. More people are also moving out on their own after living with friends and relatives in the recession. That's driving a big gain in apartment construction and also pushing up rents.
In February, spending on single-family construction rose 4.3 percent, helping to offset a 2.2 percent drop in apartment construction. Residential activity is now 20.1 percent above where it was a year ago.
The small 0.4 percent rise in nonresidential construction in February followed a 5.9 percent plunge in January. The February gains were led by a 4.8 percent rise in office construction and a 3.1 percent increase in health care, a category that covers hospitals and doctors' clinics.
The 0.9 percent rise in public construction reflected a 1.1 percent increase in state and local government building. Federal construction dropped by 1.1 percent following a 2.1 percent decline in January.
In February, U.S. homebuilders requested permits for future construction at the fastest pace in 4 1/2 years. And they started to build single-family homes at the fastest pace in that time period.
With sales of new homes and previously owned homes trending higher, the increased demand has helped push home prices up. U.S. home prices rose 8.1 percent for the 12 months that ended in January, according to the Standard & Poor's/Case-Shiller 20-city index. Prices rose in all 20 cities surveyed and eight markets posted double-digit gains.
Rising home prices are expected to encourage more people to put their homes on the market. The market has been held back by a low supply of available homes for sales.