Construction of new single-family homes rose to a seasonally adjusted rate of 401,000 units in May, the best reading in six months and a sign that the home building sector may have hit bottom this spring and is now showing tentative signs of a recovery.

May starts rose 7.5% from April but fell 41% compared to the same month last year.

All housing starts (including multifamily) rose to a seasonally adjusted rate of 532,000 units, a 17% jump from April but a 45% decline from May 2008.

New construction for single-family units was strongest in the south (rising 10.6%) but weakest in the northeast, which suffered a 12.5% sequential decline.

Even though May's construction numbers are a hopeful sign, housing and mortgage executives are concerned that rising interest rates could snuff out the momentum.

In early trading Tuesday, the price of home building stocks were up slightly.

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