Housing starts drop, but permits jump

Tony Gutierrez / AP

Jeff Raymond, left, with Ari-Tex Electric Inc., prepares to install lighting in a Hawkins-Welwood Homes luxry townhome site Wednesday, May 16, 2012, in Plano, Texas.

By Patrick Rizzo

Construction companies broke ground?on fewer privately-owned homes?in May, but permits to begin construction jumped,?raising hopes that the housing market's recovery was still rolling along.

The Commerce Department?reported Tuesday that?housing starts dropped?4.8?percent last month to a seasonally-adjusted rate of 708,000. Single-family housing starts rose?3.2 percent, but multi-family home starts dropped 21.3 percent.

Permits for future construction rose?7.9 percent last month, however,?to the highest since September 2008 when the nation was in the depths of the worst housing crisis since the Great Depression.

The data came a day after a report from home builders showing that their industry is feeling the most upbeat in five years.

The NAHB/Wells Fargo Housing Market index rose one point from the month before to 29, in another sign that the housing market may be slowly heading into recovery, and one point ahead of the expectations of economists polled by Reuters. May's reading was previously reported as 29.

It also comes as the Federal Reserve begins a two-day meeting to weigh the state of the entire economy and whether the central bank?should act to help revive what seems to be a flagging recovery. Despite the drop in May's numbers after a big rise i n April, the housing market could prove to be a bright spot in the Fed's outlook.

"A disappointing headline number on the housing starts that looks to be partially offset by a much higher than expected permits number for April. So on balance, the numbers are a push, one cancels out the other. In the broader scheme of things, this housing data will get lost ahead of the Fed meeting today and tomorrow,"?Commonwealth Foreign Exchange chief market analyst Omer Esiner told Reuters.

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CNBC's Rick Santelli breaks down the latest data on housing, and what it indicates about the health of U.S. economy, with CNBC's Steve Liesman.

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