The overall pace of homes started rose 6.8 percent last month to a seasonally adjusted annual rate of 914,000, the Commerce Department said Tuesday. That followed a 14.8 percent decline in April. May's rate is still below March's pace of more than 1 million -- the highest in five years.
Single-family home construction, nearly two-thirds of the market, rose 0.3 percent last month to an annual rate of 599,000. That followed two months of declines.
Apartment construction, which is more volatile, surged 21.6 percent to an annual rate of 315,000. That came after a big drop in April.
Applications for building permits, a gauge of future construction, fell 3.1 percent in May to a seasonally adjusted 974,000, remaining close to a five-year high hit in April.
Overall, the report points to more evidence of a housing recovery that has become sustainable. New-home construction has risen 28.6 percent since May of 2012.
Improved hiring and low mortgage rates have encouraged more people to buy homes. The increased demand, along with a tight supply of homes for sale, has pushed home prices higher.
Stronger housing markets are helping the economy grow and offsetting some of the drag this year from higher taxes and federal spending cuts.
A better outlook for housing has made builders more optimistic, leading to more construction and jobs. The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose to 52 this month, up from 44 in May. That was the highest reading in seven years and the largest monthly increase in more than a decade.
A reading above 50 indicates more builders view sales conditions as good, rather than poor.
Still, some markets are recovering faster than others. In May, housing starts rose 17.8 percent in the South and 5.7 percent in the West. But they fell 13.7 percent in the Midwest and 9 percent in the Northeast.
Many of the nation's major homebuilders have reported strong annual growth in sales during the spring home-selling season. The increased demand has paved the way for builders to raise prices and ramp up construction of more homes, despite lingering concerns over rising costs for land, building materials and labor.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.
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