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.
"In the near-term the drop in permits clearly signals falling starts ahead," Shepherdson wrote.
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