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This file photo shows a new home under construction in Phoenix.Matt York/The Associated Press

Construction of new homes nudged down slightly in May, with builders pulling back in the Northeast and Midwest.

Housing starts ticked down 0.3 per cent to a seasonally adjusted annual rate of 1.16 million units, the Commerce Department said Friday. The government's residential construction report can be volatile on a monthly basis, which might explain the slight decrease.

Home construction has improved much of this year, with single-family houses accounting for much of the gains unlike recent years when developers focused more on apartments. Housing starts have climbed 10.2 per cent compared to the first five months of 2015, a sign that healthy demand exists because of ultra-low mortgage rates and a relatively healthy job market with unemployment at 4.7 per cent.

Single-family house starts have climbed 14.5 per cent this year, evidence that builders are actively seeking homeowners rather than renters.

"Single family builders are slowly, but surely, gaining ground on what has been a strong four years for multifamily construction," said Ralph McLaughlin, chief economist at the online real estate firm Trulia.

Analysts at Bank of America Merrill Lynch expect that single-family construction will total 800,000 this year. That would mark solid growth, yet remain significantly below the 1960 to 2000 average of 1.04 million in a sign of how sluggish the recovery from the housing bust and recession has been.

Starts rose 14.4 per cent in the West and 1.5 per cent in the South last month. They plunged 33.3 per cent in the Northeast and fell 2.5 per cent in the Midwest.

Applications for building permits, an indicator of future activity, rose 0.7 per cent in May to an annual rate of 1.14 million.

Builders also turned a bit more confident in June.

The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday rose to 68 this month, up from 58 in June. Readings above 50 indicate more builders view sales conditions as good, rather than poor.

Lower borrowing costs have also aided construction and sales of new homes.

Mortgage buyer Freddie Mac said Thursday the average 30-year fixed-rate mortgage is 3.54 per cent, down from 4.00 per cent a year ago.

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