U.S. builders broke ground on more houses than analysts expected last month, the Commerce Department said Tuesday.
Housing starts 17% increased from April, to an annual rate of 532,000, the department said.
Building permits, an indicator of future construction, also rose more than estimated.
"It's fair to say that we have found a bottom in housing, though the concern is that the bottom is at a very low level," said Zach Pandl, an economist at Nomura Securities International Inc. in New York. "We have a long way to go to reach more normal levels of activity."
Housing starts were projected to rise to an annual rate of 485,000, according to the median forecast of 71 economists surveyed by Bloomberg. The estimates ranged from 450,000 to 600,000.
Permits rose 4%, to an annual rate of 518,000. The average forecast had called for a rate of 508,000.
Construction of single-family homes rose 7.5%, to a 401,000 rate. That gain was the third in as many months.
Work on multifamily homes, such as town houses and apartment buildings, jumped 62%, to an annual rate of 131,000.
The increase in starts was led by a 29% jump in the West and a 17% increase in the South. Starts rose 11% in the Midwest and 2% in the Northeast.
Home starts plunged 45% from a year earlier, the Commerce Department report showed. They reached a peak annual rate of 2.27 million in January 2006, capping the biggest housing boom in six decades.
Other recent reports showed that combined sales of new and existing homes increased in April, and that the number of Americans signing contracts to buy previously owned homes rose for the third straight month.
Falling prices are bringing homes within reach of more consumers, and the Obama administration's economic stimulus plan included an $8,000 tax credit for first-time buyers for purchases completed before Dec. 1.
Builders continue to face competition from existing properties. Mortgage delinquencies and foreclosures set records in the first quarter, according to the Mortgage Bankers Association.
Mortgage rates have climbed, even though the Federal Reserve Board has worked to trim borrowing costs by purchasing Treasuries and keeping the benchmark interest rate close to zero.
Toll Brothers Inc., the largest luxury home builder, and Hovnanian Enterprises Inc., New Jersey's biggest builder, reported quarterly losses this month on plunging revenue. Still, the companies narrowed their losses from a year earlier.
"Some buyers are beginning to re-enter the new home market," Robert Toll, the chairman and chief executive officer of Toll Brothers, said June 3. "Cancellations appear to be leveling off," while "concerns about job security and the economy continue to inhibit traffic."