U.S. housing starts and permits for future home construction unexpectedly fell in June, offering further evidence of a sharp slowdown in economic activity in the second quarter.
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The Commerce Department said on Wednesday housing starts dropped 9.9 percent to a seasonally adjusted annual rate of 836,000 units. That was the lowest level since August last year.
Economists polled by Reuters had expected groundbreaking to rise to a 959,000-unit rate last month. June's drop unwound the prior month's gains, suggesting a smaller boost from residential construction to second-quarter gross domestic product growth.
Permits to build homes fell 7.5 percent last month to a 911,000-unit pace. Economists had expected them to rise to a 1-million unit pace.
Data including retail sales, trade and inventories indicate the economy lost considerable momentum in the last quarter, with growth estimates as low as 0.5 percent.
The economy, which grew at a 1.8 percent annual pace in the first quarter has been hit by tighter fiscal policy and slowing global demand. Housing has been providing some buffer against those headwinds.
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Despite the unexpected drop in groundbreaking and permits last month, there was little in the report to suggest the housing recovery in unraveling as the volatile multi-family segment accounted for much of the decline.
Sentiment among single-family home builders hit a 7-1/2 year high in July, a report showed on Monday, amid optimism over current and future home sales. But many builders have been complaining about a shortage of labor and materials, which may have contributed to last month's surprise decline in activity.
"We should see growth in single-family construction into 2014. That's positive for housing, jobs and overall growth," said Gus Faucher, senior macroeconomist at PNC Financial Services in Pittsburgh.
Last month, groundbreaking for single-family homes, the largest segment of the market, slipped 0.8 percent to a 591,000-unit pace, the lowest since November 2012. Starts for multi-family homes declined 26.2 percent to a 245,000-unit rate.
Permits for multi-family homes fell 21.4 percent to a 287,000-unit rate. But permits for single-family homes rose 0.6 percent to a 624,000-unit pace, the highest since May 2008.
Housing's recovery is being aided by still-low mortgage rates engineered by the Federal Reserve's accommodative monetary policy and steady employment gains.
While mortgage rates have spiked in recent weeks after the Fed expressed its desire to start cutting back on its bond purchases later this year, economists do not believe that this will derail the housing recovery. The monthly $85 billion in bond purchases have been holding down interest rates.
Fed Chairman Ben Bernanke said on Wednesday the central bank still expected to start scaling back its massive asset purchase program later this year, but left open the option of changing that plan in either direction if the economic outlook shifted.