US housing starts rose less than expected in August as groundbreaking on multi-family home projects fell.
But the trend continued to point to a turnaround in the housing market.
The Commerce Department said that housing starts increased 2.3% to a seasonally adjusted annual rate of 750,000 units.
July's starts were revised to show a 733,000-unit pace instead of the previously reported 746,000.
Economists polled by Reuters had forecast residential construction rising to a 765,000-unit rate. Compared to August last year, residential construction was up 29.1%.
Housing starts are now a third of their 2.27 million-unit peak in January 2006. The housing market, the Achilles heel of the US recovery from the 2007-09 recession, is slowly healing.
Sales have been creeping up and the house price decline has bottomed, with a tightening supply of properties on the market raising prices in some urban areas. In addition, homebuilder sentiment touched a six-year high in September.
Home building is expected to add to gross domestic product growth this year for the first time since 2005.
Though residential construction accounts for only about 2.5% of GDP, economists estimate that for every new house built, at least three new jobs are created.
Fed move will boost housing market
The Federal Reserve moved last week to bolster the economy, announcing it would buy $40 billion in mortgage-backed securities per month until the outlook for employment improved significantly.
The Fed said it hoped the purchases would in part help to unstick a housing sector that Fed Chairman Ben Bernanke called "a missing piston" in the US recovery.
Analysts believe the third round of bond purchases, or quantitative easing, will support the housing market.
A separate report from the Mortgage Bankers Association showed applications for loans to buy homes fell last week, but record low mortgage rates boosted demand for refinancings.
Last month, groundbreaking for single-family homes, the largest segment of the market, rose 5.5% to a 535,000-unit pace - the highest level since April 2010. Starts for multi-family homes fell 4.9%.
Building permits slipped 1% to a 803,000-unit pace in August after surging the prior month to the highest in four years. July's permits were unrevised at 811,000 units.
Economists had expected permits to fall to a 796,000-unit pace. Permits to build single-family homes rose 0.2% last month to a 512,000-unit pace.
Permits for multi-family homes fell 3% to a 291,000-unit rate.
