The nation's homebuilders broke ground on a higher-than-expected number of homes in April, laying the foundation for what could be an improving housing market after a long housing slump.
The Commerce Department reported that privately-owned housing starts rose 2.6 percent to a seasonally adjusted annual rate of 717,000 in April. Building permits, which are a sign of future construction activity, dropped 7 percent, but the decline was mitigated by permit hitting a 3.5 year high in March.
March's starts were revised up to a 699,000-unit pace from a previously reported 654,000 unit rate.
Economists polled by Reuters had forecast housing starts rising to 680,000-unit rate. Compared to April last year, residential construction was up 29.9 percent.
The housing market is showing some signs of life after collapsing six years ago, but remains hobbled by a glut of unsold homes.
However, rising demand for rentals, which has seen building breaking more ground on apartment projects, is helping to stabilize the market.
Housing starts last month rose across the board. Groundbreaking for single-family homes increased 2.3 percent. This segment accounts for most of the market. Starts for multi-family homes advanced 3.2 percent.
Despite last month's overall jump in starts, they remain less than a third of their peak in January 2006. Residential construction in the first quarter grew at the fastest pace in nearly two years and is expected to contribute to economic growth this year for the first time since 2005.
Last month, housing starts rose in two of the four regions, but fell 20.7 percent in the Northeast.
Sentiment among home builders touched a five-year high in May, a survey showed on Tuesday, amid growing optimism about current sales and buyer traffic over the next six months.
That suggest the 7 percent drop in permits to a 715,00-unit pace last month would be temporary. March's permits were revised to a 769,000-unit rate, the highest since September 2008.
Economists had expected permits to fall to a 730,000-unit pace from March's previously reported 764,000-unit rate.
Permits to build single-family homes rose 1.9 percent in April to a 475,000-unit pace. Permits for multi-family homes fell 20.8 percent to a 240,000-unit rate.
Reuters contributed to this report.