Housing starts rose more than expected in June to touch a six-month high and permits for future construction unexpectedly increased, a government report showed on Tuesday, likely reflecting growing demand for rental apartments.
The Commerce Department said housing starts increased 14.6 percent to a seasonally adjusted annual rate of 629,000 units, the highest level since January.
But May's starts were revised down to a 549,000 unit pace, which was previously reported as a 560,000 unit rate.
Economists polled by Reuters had forecast housing starts rising to a 575,000-unit rate. Compared to June last year, residential construction was up 16.7 percent.
Despite June's increase, housing starts are less than a third of their peak during the housing boom.
"In the grand scheme of things, it's nice to see it jump higher, but it doesn't take us out of the range we've been in," said David Mann, senior currency strategist, Standard Chartered in New York. "So there's still an extremely long way to go before we can be sure there's a serious recovery underway."
An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the housing sector's recovery two years after the end of the 2007-09 recession.
"You take the good news when you can get it, because there hasn't been much of it. While this beat is sizable and the first since January, context is everything. We're only at the top of recent lows. This doesn't change our call on residential construction one bit," said Tom Procelii, RBC Capital Markets' U.S. economist.
But demand for rentals, as Americans shun homeownership because of plummeting home prices, is stemming further declines in the housing market.
A survey on Monday showed sentiment among home builders edged up in July from a nine-month low in June, but they saw no increase in prospective buyers.
Last month, housing starts for multi-family homes soared 30.4 percent to a 176,000-unit rate, while single-family home construction -- which accounts for a large portion of the market -- increased 9.4 percent to a 453,000-unit pace.
New building permits rose 2.5 percent to a 624,000-unit pace last month. Economists had expected overall building permits in June to edge down to a 600,000-unit pace.
Permits were boosted by a 6.9 percent rise in the multi-family segment. Permits for the construction of buildings with five units and more increased 8.2 percent to their highest level since October 2008. Permits to build single-family homes edged up 0.2 percent.
New home completions fell 1.7 percent to 535,000 units in June.
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