Sales of previously occupied homes and construction of single-family homes last month reached the highest level in more than two years as the turnaround of the long-troubled sector provides a boost to the tepid economic recovery.

Existing-home sales increased 7.8% in August from a month earlier to a seasonally adjusted annual rate of 4.82 million, the National Association of Realtors said Wednesday. The month's sales were 9.3% above the same month a year earlier and are the highest since May 2010 when first-time homebuyers were rushing to qualify for a tax credit.

Meanwhile, housing starts increased 2.3% last month from July to a seasonally adjusted annual rate of 750,000, according to a separate Commerce Department report Wednesday. Single-family home construction, which made up 71% of housing starts last month, was up to its highest levels since April 2010.

"The U.S. housing recovery is for real," said Sal Guatieri, senior economist with BMO Capital Markets.

In Wednesday's Realtors report, the inventory of previously owned homes listed for sale in August rose 2.9% to 2.47 million. That represents a 6.1 month supply at the current sales pace, which is consistent with healthy levels.

The median sales price for previously owned homes in August was $187,400, up 9.5% from the same month a year earlier. The higher prices reflect a combination in the mix of homes, with more normal transactions beginning to occur and fewer distressed property sales, said Realtors' chief economist, Lawrence Yun.

"This is a surprisingly strong report," said Millan Mulraine, an economist with TD Securities. "The report reinforces our belief that the pieces for a more sustainable housing sector recovery are now falling into place.

The Commerce Department data showed single-family construction reached the highest level in more than two years, confirming that the sector is now helping the otherwise slow recovery. Housing starts increased 2.3% last month from July to a seasonally adjusted annual rate of 750,000. Compared with a year earlier, new construction was up 29%.

Construction of single-family homes, which made up 71% of housing starts last month, grew 5.5% in August to a rate of 535,000 units-the highest level since April 2010, when the market was boosted by federal tax credits. Single-family construction was up 27% from a year earlier.

U.S. homebuilders are growing more optimistic about the market as sales and prices stabilize. An index measuring home builders' confidence for September is at a six-year high, the National Association of Home Builders said Tuesday, and seeing its fifth consecutive gain.

Still, there are plenty of reasons for caution: Sales and construction starts are still below even their pre-bubble levels, and the year-over-year comparisons look strong because last year was terrible. Tax credits fueled a burst of sales activity in late 2009 and early 2010, and the hangover hit housing markets hard in much of 2011.

One negative for the industry recovery is tight lending standards, which are making it hard for many Americans to qualify for loans. Banks funded about 7.1 million mortgages in 2011, down 10% from the year before, and the lowest tally since banks issued 6.2 million mortgages in 1995, federal regulators said Tuesday.