RTTNews - With new construction of multi-family homes showing a substantial increase in the month of May, the Commerce Department released a report on Tuesday showing a much bigger than expected increase in housing starts.

The report showed that housing starts rose 17.2 percent to an annual rate of 532,000 units in May from the revised April estimate of 454,000. Economists had expected starts to rise to 485,000 from the 458,000 originally reported for the previous month.

While single-family starts showed a notable 7.5 percent increase in May, the jump in housing starts was due in large part to a 77.1 percent increase in buildings with five units or more.

The bigger than expected increase lifted housing starts well off the record low set in April, although they remain down 45.2 percent compared to the May 2008 rate of 971,000.

Housing starts in the West showed a substantial 28.6 percent increase in May, while starts in the South and Midwest increased by 16.8 percent and 11.1 percent, respectively. Starts in the Northeast showed a more modest 2.0 percent increase.

The report also showed that building permits, an indicator of future housing demand, rose 4.0 percent to an annual rate of 518,000 from the revised April rate of 498,000. Permits had been expected to edge up to 508,000 from the 498,000 originally reported for the previous month.

A 7.9 percent increase in building permits for single family homes contributed to the bigger than expected increase in permits, more than offsetting a 9.8 percent decrease in permits for buildings with five units or more.

On Monday, the National Association of Home Builders released a report showing that homebuilder confidence has deteriorated in June, with the decrease seen as an indication that homebuilders remain cautious and concerned about the fragile state of the housing market.

The report showed that the National Association of Home Builders/Wells Fargo Housing Market Index fell to a reading of 15 in June from a reading of 16 in May. Economists had been expecting the index to edge up to a reading of 17.

NAHB Chief Economist David Crowe said, Builders are taking their cue from consumers, who remain uncertain about the economy and their own situation.

Builders are also finding it difficult to complete a sale because customers cannot sell their existing homes, Crowe added.

In other economic news, a report from the Labor Department showed a smaller than expected increase in wholesale prices in the month of May, with a notable decline in food prices nearly offsetting a jump in energy prices.

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