US housing started slipping in May as the construction of multi-family housing units dropped, but further gains in building permits suggests a rebound that would continue to support economic growth in the second quarter.
Groundbreaking fell 0.3 percent to a seasonally adjusted annual pace of 1.16 million units, the Commerce Department said on Friday. May's decline followed a 4.9 percent surge in April.
Housing remains a pillar of strength for the economy, with residential construction adding almost six-tenths of a percentage point to first-quarter gross domestic product, the biggest contribution in more than three years.
Economists polled by Reuters had forecast housing starts falling to a 1.15 million-unit pace last month.
US Treasury prices pared losses after the data. Stock index futures were trading lower and the US dollar was weaker against a basket of currencies.
Groundbreaking on single-family homes, the largest segment of the market, rose 0.3 percent to a 764,000-unit pace last month. Single-family starts in the South, where most home building takes place, rose 2.6 percent to their highest level since December 2007.
Single-family starts in the Northeast surged 12.7 percent.
In the West, groundbreaking on single-family housing projects rose 1.9 percent. But single-family starts in the Midwest tumbled 14.7 percent to a six-month low.
Further gains in single-family starts are likely after a survey on Thursday showed confidence among home builders rose to a five-month high in June amid optimism over sales and buyer traffic.
But single-family home construction continues to run ahead of permits, which could limit gains in the near term.
Housing starts for the volatile multi-family segment fell 1.2 percent to a 400,000-unit pace. The drop followed an 11.9 percent jump in April.
The multi-family segment of the market continues to be supported by strong demand for rental accommodation as some Americans remain wary of owning homes years after the housing market collapse.
Multi-family home construction is also being aided by rising household formation as a fairly strong labour market increases employment opportunities for young adults.
Building permits rose 0.7 percent to a 1.14 million-unit rate last month. Permits for the construction of single-family homes fell 2.0 percent last month to a 726,000-unit rate.
But single-family permits in the South rose 0.8 percent to a five-month high. Multi-family building permits increased 5.9 percent to a 412,000-unit pace in May.