Despite positive figures for privately owned housing starts, the number of building permits, an indicator of future construction, dropped to its lowest level in six months.

Housing starts rose to a seasonally adjusted annual rate of 672,000 in April, up 5.8 percent from March and a whopping 40.9 percent from April 2009, according to a U.S. Census Bureau report. Building permits in April, however, were at a seasonally adjusted annual rate of 606,000, 11.5 percent below March but still 15.9 percent above April 2009.

The slump in permits could indicate that sustained gains in the weakest part of the economy will require job creation and fewer foreclosures, Bloomberg reported.

“We think the pace of the housing recovery will be modest at best,” Jonathan Basile, an economist at Credit Suisse in New York, told Bloomberg. “It’s encouraging to see starts gain some traction, but the decline in permits takes some of the luster off.”



Also tempering confidence in the housing industry was an increase in home repossessions to record levels in April. But foreclosure filings dropped, which could indicate that mortgage lenders are working off a backlog of seized properties.

An $8,000 government incentive for first-time home buyers helped bring the number of new homes for sale down to 228,000, the lowest level since March 1971. So, although builders must contend with foreclosed homes coming back on the market, the lower number of new homes on the market leaves more room for builders to begin new projects.

At the same time, the confidence of home builders rose to it’s highest level since 2007, according to the National Association of Home Builders/Wells Fargo confidence index.



“The U.S. housing industry is finding, and may have already found, a bottom, but that’s different from saying that a recovery is at hand,” Richard Dugas, CEO of Pulte Group Inc., the largest U.S. home builder by revenue, told Bloomberg.