NEW YORK (CNNMoney.com) -- New home construction skyrocketed 40.9% in April compared to last year, according to a government report released Tuesday.
Housing starts increased to a seasonally-adjusted annual rate of 672,000 last month, the Commerce Department said. That was a 5.8% rise over March 2010.
Economists were expecting housing starts to jump to 655,000.
New construction of single-family homes, the key sector of the housing market, rose 10.2% over the month to an annual rate of 593,000.
New construction of multi-family homes -- buildings with 5 or more units -- was 68,000.
April was the last month in which sales to first-time home buyers could qualify for a federal tax credit of up to $8,000. Earlier this year lawmakers extended the deadline through April 30 and added a new credit of up to $6,500 for some existing home owners who move.
"The increase in demand prompted by the tax credit has lifted construction," wrote Ian Shepherdson, economist at High Frequency Economics, in a research note.
"But the expiration of the credit ... has made homebuilders wary about continuing to add new homes during the summer," he said.
Building permits: That's probably why applications for building permits, a gauge of future construction activity, sank in April. Permits fell to a seasonally adjusted annual rate of 606,000 last month, down 11.5% from a revised 685,000 in March.
Economists were expecting 680,000 permits. But despite this month's sharp drop, permits were still up 15.9% from April 2009.
Walmart, Target and Kroger's profit is taking a hit as they fight to reach shoppers online. More
Get ready for sticker shock at the gas station if you're one of the estimated 41.5 million Americans hitting the roads this Memorial Day weekend. More
It's normal for car prices to rise with options. But the Model 3's price reaches much farther than most. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
It mostly boils down to confusion, commissions, and fees. More