New home construction in May rose 4.3 percent compared to April, the Commerce Department said Wednesday, as activity began to resume despite the coronavirus pandemic.

However the pace of homebuilding hit a seasonally adjusted annual rate of 974,000, far short of what analysts had forecast and 23.2 percent below May 2019, according to the data.

The modest rebound followed a steep decline in April after the nationwide shutdowns to contain the spread of COVID-19 took effect, although the decline was revised upwards to be less severe than initially reported.

Most of the increase was in construction of apartment buildings, as the pace for single-family homes was flat, according to the report.

But housing starts continued to fall in the South and Midwest, while rising in the Northeast and surging nearly 70 percent in the West.

The pace of homebuilding rose in May but remained 23.2 percent below the same month in 2019
The pace of homebuilding rose in May but remained 23.2 percent below the same month in 2019 GETTY / AL BELLO

Despite the tepid gain, analysts at Oxford Economics called the data the start of a "slow recovery."

"We look for strong demand, improving homebuilder confidence and an ongoing shortage of supply to support growth in housing starts over the rest of the year, but we still expect starts to be down on average across 2020 overall," they said in an analysis.

In fact, building permits jumped 14.4 percent in the month, indicating there are more projects in the pipeline.

Low interest rates are expected to continue to drive demand, and a separate report from the Mortgage Bankers Association (MBA) showed home loan applications jumped eight percent in the latest week, while purchase activity was the highest in 11 years.

"The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence," said Joel Kan, MBA's associate vice president of economic and industry forecasting.

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