Updated

The pace of U.S. home construction fell 2.1 percent in May to a lower rate than analysts had expected for the lifeless housing market while building permit activity, a signal of future building plans, increased more than anticipated, a government report showed on Tuesday.

The Commerce Department said housing starts set an annual pace of 1.474 million units in May compared with a 1.506 million unit pace in April. Economists had forecast May housing starts to drop to a 1.480 million unit pace from the 1.528 million rate originally reported for April last month.

Building permits, which signal future construction plans, rose in May by 3.0 percent to a pace of 1.501 million units. Economists had been expecting the permits to hit a 1.471 million unit rate. Permits for single-family homes, though, were at their lowest level since July 1997.

Tuesday's data comes a day after a report indicating that home-builder confidence is at its lowest level in over 16 years.

The National Association of Homebuilders/Wells Fargo Housing Market Index dropped two points to 28 in June. The index of builder sentiment had not dipped that low since it reached 27 in 1991. Readings below 50 indicate more builders view market conditions as poor rather than favorable.