U.S. new-home construction rose more than projected in May to the fastest pace in more than a decade while permits cooled for a second month, indicating mixed progress in the supply-constrained housing market, government figures showed Tuesday. Residential starts rose 5% to a 1.35m annualized rate (est. 1.31m), highest since July 2007 Single-family starts advanced 3.9%; multifamily up 7.5% Permits, a proxy for future construction of all types of homes, fell 4.6% to 1.3m rate (est. 1.35m). The increase in groundbreaking was concentrated in the Midwest, the only region to see a gain in May, as starts jumped 62.2% to 266,000 — the highest since 2006. The other three regions saw declines, though the drop was only 0.9% in the biggest area, the South.

Permits rose in the Northeast and Midwest, consistent with the view that national demand for housing remains solid. That reflects the support that prospective buyers are getting from a strong labor market, lower taxes and improved finances.

At the same time, potential buyers are facing a squeeze on affordability as property values keep soaring and mortgage rates climb. Tariffs on lumber and other imported materials, shortages of qualified workers, and a scarcity of ready-to-build lots are all leading to elevated construction costs.