NEW YORK (CNN/Money) - New home construction held up well in May despite higher mortgage rates, a government report showed Wednesday, as builders showed faith in the housing market, especially for single-family homes.

The Commerce Department reported that overall housing starts edged down to an annual rate of 1.97 million in May from a revised 1.98 million rate in April.

But that was due to a drop in work on apartment buildings; single-family home building actually rose.

The number was also the sixth highest rate on record, with all five better months coming since October, and it topped forecasts on Wall Street for a dip to a rate of 1.95 million starts in May.

The May reading was just 5 percent off the December record of 2.07 million housing starts, and was up 12.5 percent from a year earlier.

"The bottom line is that the housing sector, at least for now, is more than holding its own in the face of higher but not yet high mortgage rates," said a note from economist Steve Stanley of RBS Greenwich Capital.

"The uptick in the (Mortgage Bankers Association) mortgage applications for purchase index last week suggests that this strength has continued into early June."

The MBA seasonally adjusted index to measure mortgages used for home purchases, rather than refinancing, rose 4 percent last week even as the average rate on 30-year fixed-rate home loans increased to 6.34 percent from 6.25 percent. That's up from a 5.34 percent average rate in early March, when rates were near record lows.

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Gina Martin, economist for Wachovia Securities said the recent rise in mortgage rates could actually be helping the current numbers by pushing fence-sitters into the market.

"People could be seeing rates are going up, and if they were thinking of a new home purchase in the fall, they'll say, 'Maybe I should push it forward a bit to lock in a lower rate'," she said.

While Martin does expect housing starts and permits to slow later in the year, she doesn't expect a steep drop, especially if the job market stays strong.

The last three months have all seen strong numbers for new jobs, which can affect home purchases as much or more than mortgage rates, Martin said.

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"The mortgage rates, even as they increase, are still relatively low," she said.

In its report, the Commerce Department said the drop in total housing starts was due to a decline in apartment buildings. Single-family home starts rose to an annual rate of 1.64 million from 1.62 the previous two months.

It also said that building permits, an indication of homebuilders' views of the market for new homes, jumped to an annual rate of 2.08 million last month from a rate of 2.01 million in April.

The Briefing.com survey forecast permits would edge down to 1.97 million.