After reporting a steep drop in new residential construction in the previous month, the Commerce Department released a report on Tuesday showing that housing starts in the U.S. unexpectedly saw further downside in the month of April.

The report said housing starts fell by 2.6 percent to an annual rate of 1.172 million in April after tumbling by 6.6 percent to a revised 1.203 million in March.

Economists had expected housing starts to climb to a rate of 1.260 million from the 1.215 million originally reported for the previous month.

The unexpected decrease reflected a steep drop in multi-family housing starts, which plunged by 9.2 percent to 337,000 in April from 371,000 in March.

On the other hand, the Commerce Department said single-family starts edged up by 0.4 percent to a rate of 835,000 in April from 832,000 in March.

The report also showed notable decreases in housing starts in the Northeast and South, offsetting increases in housing starts in the Midwest and West.

"This continued, slow pace of construction of new homes is a major bottleneck to a faster economic and housing recovery," said National Association of Realtors Chief Economist Lawrence Yun.

Additionally, the Commerce Department said building permits slid by 2.5 percent to a rate of 1.229 million in April from 1.260 million in March.

Building permits, an indicator of future housing demand, had been expected to inch up to a rate of 1.270 million.

Single-family permits slumped by 4.5 percent to a rate of 789,000 in April from 826,000 in March, more than offsetting an increase in multi-family permits.

On Monday, the National Association of Home Builders released a report showing homebuilder confidence has unexpectedly improved in the month of May.

The report said the NAHB/Wells Fargo Housing Market Index rose to 70 in May after pulling back to 68 in April. Economists had expected the index to come in unchanged compared to the previous month.

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