There's no denying that the housing market is on fire

The US housing market is exploding.

On Friday morning, Census Bureau data showed that housing starts surged 9.8% to an annualized pace of 1.174 million, a level not seen since July 2007.

Building permits, which indicate the pace of future construction, climbed 7.4% to an annualized pace of 1.343 million, also the highest level in about eight years.

"With a nearly 30% increase in housing starts compared to June of last year, the residential market recovery is here, and it is strong and sustainable," said Peter Ciganik, managing director of GTIS Partners, in a note Friday.

"The increase is the result of a strong job market, rising consumer confidence, and a moderate and much needed improvement in the supply of mortgage credit."

And so if anyone is looking for a bright spot in this economic recovery, the housing market is where to find it. The continued strength of this corner of the economy is feeding into other crucial areas.

"Housing 'caught fire' in a positive sense this spring helping to heat up an economy that was frozen stiff in the cold winter months," PNC economists Stu Hoffman and Gus Faucher wrote in a note Friday. "This will continue to add construction jobs to more than make up for the loss of jobs in the energy economy."

On Thursday, the National Association of Homebuilders' homebuilder sentiment index rose to the highest level in nearly ten years.

Pantheon Macroeconomics' Ian Shepherdson noted that while it's not a solid indicator of ongoing construction, the index "does add weight to the increasing pile of evidence suggesting that a real housing upswing is underway."

The Beige Book

The Federal Reserve's beige book - a collection of anecdotes on the US economy - released Wednesday showed that "several" of the 12 districts noted an uptick in real estate activity.

As Business Insider's Shane Ferro noted, most regions showed signs of either a housing boom or an increase in residential and commercial real estate.

One contact in Boston told the Fed that the city's office leasing market is the strongest it has been in 50 years. Another in New York said new construction is at a level not witnessed in a decade. Some in Chicago were even worried that the commercial real estate market is overheating.

The signs of a boom are everywhere.

Home Prices

What's also obvious is that the cost of housing is soaring, to the point where it's again growing unaffordable.

On Friday, we got data on consumer prices, and the headline print of 0.3% came right in line with expectations.

However, the rent component jumped 0.4%, the highest since October 2006, with primary rent rates up 3.5% year-on-year, and owners' equivalent rent up 2.9%.

The value of each square foot of housing surged during the housing bubble, plunged during the recession, and has been on the rise since 2011.

At the same time, houses have gotten larger, with the area of new houses over 3,000 square feet roughly doubling since 1999. Meanwhile, rental vacancies have shrunk.

And so, it's not hard to understand why home ownership has plunged. In the first quarter, the homeownership rate fell to 63.7%, the lowest level in 25 years.

This is particularly concerning for Millennials - the cohort between 15 and 35 with an average age of 25 - who are in the prime stage of their lives to buy their first homes.

So far, they are mostly opting to rent instead, or worse, still living in their parents' basements.

Strong fundamentals

But what's encouraging for some economists is that as the fundamentals of the economy are strong.

For many experts, the first-quarter contraction was a blip in what's remained a bullish uptrend in an economy strong enough for the Fed to raise interest rates, however slowly it decides to.

"Job and income gains, low mortgage rates, good affordability, an easing in lending standards, and a gradual return to homeownership are all supporting single-family building," PNC's Hoffman and Faucher wrote. "New mortgage rules designed to support home buying, especially for first-time homeowners, are also a positive. Residential construction will provide a big boost to GDP growth in the second quarter, and through the rest of 2015."

The second quarter is crucial. After a contraction in the first, economists are forecasting a better print when the first estimate for Q2 gross domestic product is released on July 30.

If economists' estimates are accurate, the housing market recovery will have played a key role in rebounding and sustaining an economy on the mend.