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August housing starts fail to impress; multifamily a drag

Laborers raise a wall on a new home under construction at Taylor Morrison Home Corp.'s La Solara Community in Dublin, California.
David Paul Morris | Bloomberg | Getty Images

U.S. housing starts rose less than expected in August amid a sharp slowdown in the multifamily sector, but a surge in permits for single-family homes pointed to sustained strengthen in the housing market recovery.

The Commerce Department said on Wednesday housing starts increased 0.9 percent to a seasonally adjusted annual rate of 891,000 units. July's starts were revised down to show a 883,000-unit pace instead of the previously reported 896,000 units.

August housing starts up 0.9%; building permits down 3.8%

Economists polled by Reuters had expected groundbreaking to rise to a 917,000-unit rate last month.

Starts for multi-family homes tumbled 11.1 percent to a 263,000-unit rate. Groundbreaking for single-family homes, the largest segment of the market, increased 7.0 percent to a 628,000-unit pace, the highest since February.

The drop in multifamily starts could be the result of a spike in mortgage rates, which might be making developers cautious about taking on new projects.

Higher mortgage rates have slowed the pace of home sales, but demand for accommodation as household formation continues to recover from multi-decade lows is expected to keep residential construction supported.

Mortgage rates have risen in anticipation of the Federal Reserve reducing the $85 billion in bonds it is buying each month to keep interest rates low. Economists believe the Fed will make an announcement on the future of the program at the end of a two-day meeting later on Wednesday.

Permits to build homes fell 3.8 percent in August to a 918,000-unit pace. Economists had expected permits, which lead starts by at least a month, to be little changed at a 950,000 unit pace.

All the drag last month came from the multifamily sector, where permits dropped 15.7 percent. Permits for single-family homes rose 3 percent to their highest level since May 2008.