U.S. housing starts fell in May after a hefty increase the prior month, but a surge in permits for future construction to a near eight-year high suggested the pullback was temporary and pointed to underlying strength in housing.
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Groundbreaking dropped 11.1 percent to a seasonally adjusted annual pace of 1.04 mullion units, the Commerce Department said on Tuesday. That partially reversed April's large gain. April starts were revised up to a 1.17 million-unit rate, the highest since November 2007.
Economists polled by Reuters had forecast housing starts falling to a 1.10 million-unit pace last month after a previously reported 1.14 million-unit rate.
Permits for future home construction increased 11.8 percent to a 1.28 million-unit rate, the highest since August 2007. Permits have been above a 1 million-unit pace since July.
Home building has regained ground lost during a harsh winter and there are signs activity will accelerate this year as tightening labor market conditions spur strong wage gains and encourage young adults to move from their parents' basements.
A survey on Monday showed confidence among builders vaulting to a nine-month high in June, with measures of current sales and buyer traffic increasing solidly.
Economists anticipate that the housing market strength will take up some of the slack of the struggling manufacturing sector and support economic growth this year.
Groundbreaking for single-family homes, which account for the largest share of the market, fell 5.4 percent to a 680,000 unit pace. Starts for the volatile multifamily segment tumbled 20.2 percent to a 356,000 unit rate.
Groundbreaking fell in all four regions, declining a steep 26.5 percent in the Northeast after April's spectacular gains. Starts in the South, where most of the home building takes place, fell 5.0 percent.
Single-family building permits increased 2.6 percent to their highest level since December. Multi-family building permits soared 24.9 percent.
Permits for buildings with five units or more increased to their highest level since January 1990. (Reporting By Lucia Mutikani; Editing by Andrea Ricci)