Housing starts fell to a seasonally adjusted annual rate of 708,000, off 4.8 percent compared with a revised figure for April of 744,000.
Housing starts were 28.5 percent above the May 2011 rate of 551,000.
The rate of single-family housing starts in the month was 516,000, which was 3.2 percent above the revised annual rate for April of 500,000.
For multiple-unit housing starts -- projects with five or more living units -- the annual rate in March came to 179,000.
Permits issued for privately owned housing units rose 7.9 percent in in May compared to March, reaching an annual rate of 780,000. A year earlier in May, the annual rate for permits issued stood at 624,000. The new rate is a 25 percent climb over the rate 12 months prior.
The department also revised its figure for permits issued in April, which is now listed at 723,000.
Permits issued are an indicator of what direction construction starts might take one or two months down the road.
Completed housing projects in May were estimated at a seasonally adjusted annual rate of 598,000, which is 10.3 percent below the revised figure for April, estimated at 667,000 units, and 10.1 percent above May 2011 when 543,000 housing completions were posted.