NEW YORK (CNNMoney.com) -- New home construction surged to a five-month high in September, but permits for future building fell to their lowest level in more than a year, the government said Tuesday.
Housing starts, or the number of new homes being built, rose 0.3% to a seasonally adjusted annual rate of 610,000 in September, up from a revised 608,000 in August, the Commerce Department said.
Economists were expecting a rate of 579,000 housing starts, according to a consensus estimate from Briefing.com.
It was the largest number of new homes being built in five months, and marked a 4.1% increase over last September.
"This is an encouraging sign that builders are continuing to build at a very slow pace, but nevertheless the increases are slow as they wait for consumers to get more confident," said David Crowe, chief economist with the National Association of Home Builders.
Insecurity about the economy and jobs is the main fear holding consumers back from big purchases like homes, Crowe said.
A back-up of foreclosed homes on the market is also limiting new construction, said Kevin Brungardt, chief executive of RoundPoint Financial Group, and a former vice president of Fannie Mae.
"A large inventory of foreclosed properties, high unemployment, slow sector growth and continued house price uncertainty continue to limit housing demand," he said.
Recent investigations into the foreclosure practices of many banks and mortgage servicers had raised some concerns that a nationwide freeze on foreclosures could derail the struggling housing market.
New homes by sector: New construction of single-family homes, the key sector of the housing market, rose 4.4% over the month to an annual rate of 452,000, a four-month high.
But the annual rate for new construction of multi-family homes -- buildings with 5 or more units -- fell 6.8% to 150,000.
Building plans: Permits for future construction rose to a seasonally adjusted annual rate of 539,000 last month, down 5.6% from August. Economists were expecting 565,000 permits in September.
The last time building permits fell below 550,000 was in May 2009.
Year-over-year, permits were down 10.9%.
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