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NEW YORK (CNNMoney.com) -- Initial construction of U.S. homes rose unexpectedly in April, but the all-important single-family housing start measure fell to another 17-year low, according to a government report released Friday.

Privately owned housing starts rose to a seasonally adjusted annual rate of 1,032,000 in April, according to the Commerce Department. The rate was up 8.2% from March's revised reading of 954,000 but 30.6% lower than April of 2007.

Economists were expecting housing starts to decline to 940,000, according to consensus estimates compiled by Briefing.com.

"The month of March was awful for the stock market, economy and the construction sector, so it's not surprising to see some rebound in the month of April," said Weiss Research economist Mike Larson.

Total housing starts got a boost from multi-family homes. Buildings with five or more units rose 7.3% to a seasonally adjusted rate of 294,000, and homes with two to four units rose 2.7% to 38,000.

But multi-family housing starts are very erratic, showing several double-digit percentage gains and losses in the past six months.

"A few small multi-family projects can destroy the overall numbers, leading to a very volatile series," said Larson. "It's like watching an EKG."

Construction of new single-family homes registered the lowest reading of that measure since January 1991. Single-family housing starts were at a rate of 692,000 in April, 1.7% below March's number. Single-family homes are considered the core of the housing market.

Applications for building permits, however, rose to a seasonally adjusted annual rate of 978,000 last month. That's 4.9% above the revised 932,000 rate in March. Economists were expecting permit applications to fall to 912,000.

That's encouraging news for homebuilders, because building permits are considered a reliable sign of future construction activity. Single-family housing permits rose 4% to 646,000 in April, and multi-family homes rose 7.3% to 294,000.

"When you net it all out, the news is slightly encouraging, with the caveat that we want to see stabilization with single-family homes before we pop the champagne," Larson said.

Home construction fell slightly in the Northeast and South, but building of new homes rose 27% in the Midwest and 11.9% in the West.

Friday's report comes a day after a release of the National Association of Home Builders/Wells Fargo monthly index, which fell to its second lowest reading on record. Only 6% of the builders surveyed said the current market is good while 69% view it as poor. Builders also reported a lower level of people looking to buy new homes.

But with about a 10-month inventory of unoccupied new homes already on the market, according to the National Association of Realtors, home construction may need to slide a bit more to come down to about six- or seven-month levels that balance supply and demand.

"It's encouraging that we're not seeing ongoing overall deterioration, but the caution is that we don't want to see a big resurgence in construction," said Larson. "Sideways movement would be the most encouraging, since builders still need to work off that overhang."

The drop in single-family starts and overall battered housing market has been reflected in the plunging revenue and mounting losses of the nation's largest builders. D.R. Horton (DHI, Fortune 500), the nation's largest home builder by revenue, reported a larger than expected loss earlier this month, while two of its rivals, Pulte Homes (PHM, Fortune 500) and Centex (CTX, Fortune 500) both reported losses more than triple estimates late last month.

Earlier this week, luxury home builder Toll Brothers (TOLL) reported preliminary results showing a sharp decline in revenue and orders, as it said many buyers who put down a deposit on a new home are pulling out before they sign a sales contract. Of the nation's largest home builders, only NVR (NVR, Fortune 500) has managed to stay profitable.