Housing starts miss expectations, but overall tone upbeat

Housing starts rose less than expected in May, likely reflecting labor and material constraints, but the overall trend remained consistent with strength in the housing market.

Though permits for future home construction fell, that followed a surge in April, which hoisted them above the 1 million-unit mark. The pullback last month reflected a drop in the volatile multi-family sector, but permits for single-family construction touched their highest level in five years.

The Commerce Department said on Tuesday housing starts rose 6.8 percent to a seasonally adjusted annual rate of 914,000 units. April's starts were revised up to show a 856,000-unit pace instead of the previously reported 853,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 950,000-unit rate last month.

Builders, who are ramping up construction to meet demand for housing against the backdrop very low inventory, have been complaining about labor shortages and increased material costs.

Sentiment among single-family home builders hit a seven-year high in June, a report showed on Monday, amid optimism over current and future home sales.

Lean inventories are pushing up home prices, which are in turn boosting consumer confidence and spurring consumption, helping soften the blow on the economy from tighter fiscal policy and slowing global demand.

The Federal Reserve has targeted housing as channel to boost growth, through monthly purchases of $85 billion in government and mortgage-backed securities.

Though residential construction only accounts for about 2.5 percent of gross domestic product, housing has a wider reach on the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.

Starts are expected to top a 1 million-unit pace this year.

Last month, groundbreaking for single-family homes, the largest segment of the market, rose 0.3 percent to a 599,000-unit pace. Starts for multi-family homes increased 21.6 percent to a 315,000-unit rate.

Permits to build homes fell 3.1 percent last month to a 974,000-unit pace. Permits for multi-family homes dropped 10 percent to a 352,000-unit rate. Permits for single-family homes rose 1.3 percent to a 622,000-units, the highest since May 2008.

(Reporting By Lucia Mutikani; Editing by Neil Stempleman)