Housing starts fell less than expected in July as builders broke ground on new multifamily units likely to meet demand for rental apartments, while permits for future construction dropped, a government report showed on Tuesday.
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The Commerce Department said housing starts slipped 1.5 percent to a seasonally adjusted annual rate of 604,000 units. June's starts were revised down to a 613,000-unit pace from a previously reported 629,000 unit rate.
Economists polled by Reuters had forecast housing starts to slow to a 600,000-unit rate. Compared to July last year, residential construction was up 9.8 percent.
A bloated inventory of unsold homes and a weak economy are weighing down on the housing market, whose collapse was the main catalyst of the 2007-09 recession. A large foreclosure pipeline also is not helping, leaving builders with little incentive to break ground on new projects.
Sentiment among home builders was steady at low levels in August, a survey showed on Monday, but they were pessimistic about sales over the next six months.
But demand for rentals, as Americans shun homeownership because of plummeting home prices and a 9.1 percent jobless rate, is stemming further declines in home construction.
Last month, housing starts for multi-family homes rose 7.8 percent to a 179,000-unit rate, and groundbreaking for projects with five or more units was the highest since January. Single-family home construction -- which accounts for a large portion of the market - dropped 4.9 percent to a 425,000-unit pace.
New building permits fell 3.2 percent to a 597,000-unit pace last month. Economists had expected overall building permits in July to fall to a 605,000-unit pace.
Permits were dragged down by a 10.2 percent drop in the multi-family segment. Permits to build single-family homes rose 0.5 percent.
New home completions increased 11.8 percent to 636,000 units in July, the highest since June 2010.