US home building has broken new ground, as starts on new homes and apartments grew at the fastest rate in nearly two and a half years during August.

Construction starts, which were forecast to decline modestly, instead increased 4.5 per cent to a seasonally adjusted annual rate of 1.525 million units - the highest rate since 1.531 million in March 1994.

June and July building rates also were revised upward as a healthy pace of construction rolled into the third quarter and reignited fears that Federal Reserve policy makers might decide the economy was at risk of overheating.

Strong job growth and rising incomes have fired up consumer confidence despite stiffer long term interest rates that raised the 30 year mortgage rate to an average 7.95 per cent in August from 7.03 per cent last January.