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WRAPUP 1-U.S. housing starts, permits down sharply in July

* Housing starts fall 4.8 percent in July

* Single-family starts slip 0.5 percent

* Building permits decrease 4.1 percent

WASHINGTON, Aug 16 (Reuters) - U.S. homebuilding unexpectedly fell in July amid broad declines in single- and multi-family home construction, suggesting the housing market was struggling to rebound after slumping in the second quarter.

Housing starts declined 4.8 percent to a seasonally adjusted annual rate of 1.16 million units, the Commerce Department said on Wednesday. June's sales pace was revised down to 1.21 million units from the previously reported 1.22 million units.

The report also showed a decline in building permits, which could temper expectations of an acceleration in residential construction after it contracted in the second quarter at its steepest pace since the third quarter of 2010.

Housing subtracted 0.27 percentage point from second-quarter gross domestic product. Economists had forecast groundbreaking activity to be little changed at a rate of 1.22 million units in July. Homebuilding fell 5.6 percent on a year-on-year basis.

Last month's drop in starts pushed them further below their historic average of 1.5 million, a rate realtors say would eliminate an acute shortage of houses on the market that has driven up prices.

The dollar fell against a basket of currencies after the data before paring losses. Prices for U.S. government bonds trimmed losses, while U.S. stock futures were trading higher.

Single-family homebuilding, which accounts for the largest share of the housing market, slipped 0.5 percent to a rate of 856,000 units last month.

Despite strong demand for housing, groundbreaking on single-family housing projects has slowed since racing to near a 9-1/2-year high in February. Homebuilders continue to complain they cannot find skilled labor, especially framers, and that buildable lots remain in short supply.

Builders also say the costs of their materials are rising. Prices for building materials were increasing even before the U.S. government slapped anti-subsidy duties on imports of Canadian softwood lumber in April.

A survey on Tuesday showed confidence among homebuilders increased in August amid rising demand for new houses.

Last month, starts for the volatile multi-family housing segment tumbled 15.3 percent to a rate of 299,000 units. Groundbreaking for buildings with five units or more fell to its lowest level since September 2016.

Multi-family homebuilding is slowing as apartments come on the market, leading to an increase in the rental vacancy rate this year.

Building permits last month fell 4.1 percent to a rate of 1.22 million units. Single-family home permits were unchanged, while permits for the construction of multi-family homes plunged 11.2 percent in July. (Reporting by Lucia Mutikani; Editing by Paul Simao)