Building permits declined in May to a seasonally adjusted annual rate of 991,000, dropping 6.4 percent from the revised April rate of 1,059,000 and 1.9 percent below the May 2013 estimate of 1.01 million according to new data from the U.S. Census Bureau and the Department of Housing and Urban Development (HUD). Housing starts were also down, dropping to a seasonally adjusted annual rate of 1 million, 6.5 percent below the revised April estimate of 1.07 million. However, starts were up 9.4 percent from the May 2013 rate of 915,000.

Affordability concerns and pipeline pressures are holding back the single-family market, wrote Patrick Newport and Stephanie Karol, economists with IHS Global Insight, in an analysis of the census figures.

But the increase in single-family building permits bodes well for the future of the housing market, according to Newport and Karol. Single-family building permits rose by 3.7 percent last month, the largest monthly advance since September 2012. That’s a "nugget of very good news," especially since the gains were spread throughout the country. 

Newport and Karol expressed caution over whether a renewal of construction starts will be enough to bolster the housing market moving forward, saying that builders are already being squeezed by increasing costs and a lack of buildable land in desirable locations.

"Since distressed sales present buyers with a cheaper alternative to purchasing a new home, we should be seeing builders double down as the pipeline of distressed sales runs dry. But as existing home inventories ease, and prices rise for conveniently located lots, consumers may prefer to purchase a well-located existing home over a newly-built home in a remote area," they write.