U.S. housing starts in May rose to 974,000, more than expected, the U.S. Census Bureau said Tuesday. The increase signals a rebound driven by historically low mortgage rates, improvement in the labor market and high consumer confidence.

The number is 3.1 percent below the revised April estimate of 1,005,000, but 20.8 percent above the 806,000 in May 2012.

Economists polled by Bloomberg expected, on average, 950,000 housing starts for May. Briefing.com estimated 925,000 for May. 

Single-family housing starts in May were at a rate of 622,000; this is 1.3 percent above the April figure of 614,000. The May rate for units in buildings with five units or more was 325,000. 

"Starts rebounded in May, as we and everyone else expected, on the strength of more multifamily starts (306,000 vs 245,000 in April). What we didn’t expect, but can’t really say we are surprised, is the downward revision in single family starts to below 600,000," commented Steve Blitz, Chief Economist at ITG. "This is the real news  -- cap on housing starts owing to the current economy. We can extend from here that there is a cap on demand simply because new home inventory is so low any uptick in sales results in more starts. The slowdown in starts relative to expectations has been well documented in our Weekly Tracking Report by looking at the number of homes sold and the reduction in the volume of forest products riding the rails."

"The good news is that starts are still running ahead of the past several years – good news especially for builders. This is, to date, the best year since 2008," Blitz added.