Home-building permits at highest level since '08

NEW YORK (CNNMoney) -- Builders appear to be getting more bullish on residential real estate: In May, they applied for permits to build new homes at the highest rate since September 2008, according to a government report issued Tuesday.

The increase in permits to an annual rate of 780,000 in the Census Bureau report mirrors a recent survey of builder confidence, which rose in June to its highest level since 2007, according to the National Association of Home Builders (NAHB).

Actual housing starts, however, dropped 4.8% compared with April, although they did gain 28.5% compared with a year earlier.

Despite the decline in starts, this is a very good report, according to Pat Newport, a housing market analyst with IHS Global Insight.

"Permits are a key number," he said. "It tells us that housing construction numbers will get better and that means more jobs."

Housing starts, according to Newport, were probably off because of a surge in new construction this past winter, thanks to unusually warm weather. That moved up starts that would normally occur later in the year.

"Permits give us a better reading of the underlying picture," he said.

The market recovery is still far from full strength, according to David Crowe, chief economist for the NAHB.

"Right now, we're half of where starts and permits would normally be and less if you consider this a recovery period," he said. "Builders understand that there's still a long road ahead -- but things are improving."

The housing market has been sending out mixed messages, with home prices still very weak and foreclosures showing signs of picking up after months of decline.

A drop of multi-family housing starts to an annual rate of 179,000 from 217,000 in April accounted for the loss in new construction. Starts of single family homes rose 3.2% month-over-month to a 516,000 annual rate.

Crowe said he's happy with housing market indicators considering the "unimpressive macro-economic figures."

He said housing won't return to full throttle until the overall economy hits its stride and hiring picks up steam.