Housing starts (search) rose 0.2 percent in May, falling shy of expectations, as groundbreaking on housing with two or more units slid 19.3 percent, a Commerce Department (search) report showed on Thursday.

May housing starts increased to a 2.009 million unit rate from a downwardly revised 2.005 million unit pace in April.

Wall Street economists had expected housing starts to increase by 0.5 percent in May to a 2.048 million unit rate after climbing 9.4 percent the previous month.

Single-family housing starts rose 4.7 percent to a 1.704 million unit pace in May while multifamily starts dropped 19.3 percent to a 305,000 unit pace, the Commerce Department said.

Permits for future groundbreaking, an indicator of builder confidence, fell 4.6 percent to a 2.050 million unit pace. The drop was the largest monthly decline since June 2004 and exceeded analysts' forecasts for a 2.1 percent dip to a 2.103 million unit pace from the revised 2.148 million rate in April.

Low mortgage rates have supported the housing sector's four-year run. Even though the Federal Reserve (search) has raised its target for short-term interest rates in eight quarter-point steps to 3.0 percent, long-term interest rates have remained low. In fact, average 30-year fixed-rate mortgages remain lower than a year ago, according to finance company Freddie Mac.

Economists had said the housing sector should show signs of slowing in 2005, but so far this year, building and sales have remained robust.

For May, starts climbed 18.7 percent in the U.S. Midwest, 12.3 percent in the West and 5.1 percent in the Northeast. But groundbreaking fell 12.1 percent in the South, the report said.