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NEW YORK (CNNMoney) — A recovery in new home construction appears to be underway, with significant increases in both housing starts and building permits last month, according to the Census Bureau.

Housing starts rose 6.9% in June to a 760,000 annual rate, the highest level in four years. That’s up an impressive 23.6% compared with a year earlier. Permits to build new homes fell slightly from revised May numbers to 755,000, but were up 19.3% compared with June 2011.

Demand for homes has been strong in many markets, according to Glenn Kelman, founder of discount broker Redfin.

“Homebuyers are like a herd of hungry goats right now, going from hillside to hillside looking for something to eat,” he said. “There’s not enough inventory to go around.”

He said many recent house hunters started out looking for existing homes in picture-perfect, move-in condition and were disappointed in what they found. Few of those homes are available because the owners are sitting on them.

“The owners are not willing to sell their homes at the current price levels,” said Kelman. And buyers have had to look to new construction to order the houses they want.

That has jump-started some long-delayed building projects, according to Dwight Johnston, chief economist at the California and Nevada Credit Union Leagues.

“Within a 20-mile radius of Claremont, [Calif.], there were three big developments that had been dormant for years and they started building on them again,” he said.

A separate release from the National Association of Home Builders (NAHB) reported that builder confidence is at its highest level in five years.

“Builder confidence increased by solid margins in every region of the country in July as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved,” said Barry Rutenberg, NAHB’s chairman and a home builder from Gainesville, Fla.

That optimism had a lot to do with recent home price increases, said NAHB’s chief economist, David Crowe.

Home prices rose in April for the first time in seven months, according to the S&P/Case-Shiller home price index.

“Once home price increases start to kick in, buyers lose their fear of buying,” said Crowe.

With home building numbers on the rise and prices solidifying, the housing market should start contributing to national economic growth for the first time since 2007, according to Stuart Hoffman, chief economist for PNC Financial.

“The contribution will be even larger next year as home building continues to increase, foreclosures work their way off the market, and prices see more consistent gains,” he said.

He expects the housing market will lead economic expansion over the next two years.

One potential problem: mortgage defaults are on the rise again.Foreclosure filings rose 9% in the three months ended June 30.

Many of the foreclosed homes that come on to the market were built during the housing boom, and have many of the bells and whistles modern homebuyers want, although they’re not always in the best condition.

If many of the homes just coming into the foreclosure process now go on to be repossessed by lenders and put back on the market, the competition could hurt sales of new homes.