The government says groundbreakings in the Northeast were unchanged in May and declined in the Midwest and South. While the rate of construction is generally improving, it still lags the 1.4-1.5 million annual rate that was common in the 1980s and 1990s.
"Meanwhile, job creations of a consistent 2 million a year will push up housing demand further".
"After a strong start for single-family building this year, recent months have recorded softer readings", said NAHB chief economist Robert Dietz. This is 5.6% above the revised April estimate of 1,102,000 and is 14.6% above the May 2016 rate of 1,016,000.
US government bond prices were trading higher, while the dollar fell against a basket of currencies.
Single-family homebuilding, which accounts for the largest share of the residential housing market, decreased 3.9% to a pace of 794,000 units last month, also the lowest level in eight months. But they tumbled 8.9 percent in the South and fell 4.9 percent in the West.
Mortgage rates have risen but remain low by historical standards.
A survey on Thursday showed a dip in homebuilder confidence in June, with homebuilders expressing frustration over ongoing shortages of skilled labor and building lots.
"The falling housing starts and housing permits in May are befuddling given the lack of homes for sale and the quick pace of selling a newly-constructed homes", he said in a statement. Multi-family housing starts have now fallen for five straight months.
Both permits for construction of privately-owned housing units and beginning construction in May were well below expectations, the second consecutive month in which both declined.
Ian Shepherdson of Pantheon Macroeconomics said the May declines were driven to a large extent by volatility in multi-unit construction, with starts in that segment down almost 10 percent. Home construction is still 3.2 percent higher year-to-date, but that increase has been too modest to address the dwindling supply of homes. The unemployment rate of 4.3 percent is gradually lifting wages for workers, which was a 16-year low. Multi-family permits plunged 10.4 percent to a pace of 389,000 units in May.