Housing starts rise 9.8% in June

New apartment buildings led a surge in U.S. housing construction in June.

Builders broke ground on 1.17 million new homes in June at a seasonally adjusted annual rate, up 9.8% from May, the Census Bureau said Friday. That's above estimates of 1.13 million from economists surveyed by Bloomberg. May's figures were revised up to 1.07 million from 1.04 million.

Permits for new homes also continued to grow in June for the third consecutive month, rising to 1.34 million, up 7.4% from May's 1.25 million. That was a surprise to economists, who expected permits to fall to 1.18 million.

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The rise in housing starts, the most closely followed barometer of health in the housing market, was led by a 28.6% rise in construction in homes with 5 or more units. The number of foundations laid on single family homes actually fell 0.9% from May. There has been a rush in the past two months to take advantage of tax incentives on multifamily homes in New York, wrote Jim O'Sullivan, economist at research firm High Frequency Economics.

The trend toward apartment living is unlikely to slow down. Building permits for apartments also rose 16.1% in June - almost 80% more than this time last year.

The home market in the Northeastern U.S. topped other regions, with housing starts there jumping 35.5% after seeing a hike in building permits the previous month. Southern U.S. states also saw a modest increase in housing starts, at 13.5%, while the West and Midwest saw slight declines.

Friday's upbeat report lines up with other anecdotal evidence of a strengthening housing market in many areas across the country.

A recent regional breakdown from the Federal Reserve showed multifamily homes bolstering the market in New York, Richmond, Atlanta, Dallas and San Francisco, while single-family homes are popping up faster in Cleveland, Atlanta and Kansas City, according to the Beige Book, released Wednesday.

"This release is consistent with our view that the housing market is likely to continue to recover this year," wrote Rob Martin, Barclays researcher, in a note.