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A rebound in groundbreaking for U.S. homes in April suggested the housing market recovery was gaining some traction, even though permits for future building fell.
The Commerce Department said housing starts increased 2.6 percent to a seasonally adjusted annual rate of 717,000 units. 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 builders breaking more ground on apartment projects, is helping to stabilize the market.
"Ideally supply is getting more in line with demand, and low rates may be finally helping the turnaround, said David Carter, chief investment officer At Lenox Wealth Advisors in New York. "However, this housing story is much smaller than news out of Greece and might get easily forgotten."
Although home building accounts for about 2.3 percent of gross domestic product, the housing market has an outsized reach on the U.S. economy. A separate report on Wednesday showed applications for loans to buy homes fell last week.
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, suggesting a payback for the unusually warm weather that had boosted activity.
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 suggests 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.