WASHINGTON — U.S. builders broke ground on slightly fewer homes in July than June, but in a hopeful sign for future construction, applications for building permits rose to their highest level since August 2008.
The Commerce Department said Thursday that single-family homes and apartments started in July dipped 1.1 percent to a seasonally adjusted annual rate of 746,000. That's down from June's rate of 754,000, which was the fastest since October 2008.
The weakness in July came from a 6.5 percent drop in the building of single-family homes, which represent about 70 percent of the market. They fell to an annual rate of 502,000, down from a two-year high reached in June. By contrast, construction of apartments rose 12.4 percent to an annual rate of 244,000 units.
But applications for building permits rose 6.8 percent to a seasonally adjusted annual rate of 812,000.
"Given the strong increase in permits, the likelihood is that builders will be digging a lot more homes in the months to come," said Joel Naroff, chief economist at Naroff Economic Advisors. He said developers are taking out permits only "if they expect to put a shovel into the ground in the immediate future."
Even with the gains made this year, the rate of construction and the level of permits remain only about half the 1.5 million annual rate considered healthy. And economists cautioned that housing is still a long way from where it should be.
"The housing market is getting better, but it is taking a long time," said Patrick Newport, an economist at IHS Global Insight.
Newport said he was forecasting that housing starts would be 761,000 for all of 2012. That would be a 25 percent increase from 2011.
The housing boom drove construction to record levels in the middle of the last decade, peaking in January 2006 at a rate of nearly 2.3 million. But the bubble burst in late 2006 and 2007, and construction ceased in most parts of the country. Starts plunged to just 478,000 homes in April 2009, the low point during the housing bust.
Home builders have enjoyed improved sales trends this year, aided by record-low mortgage rates and a decline in the inventory of unsold homes.
Still, the nascent housing recovery has been subject to fits and starts. Sales of new homes fell 8.4 percent in June to a seasonally adjusted annual rate of 350,000 — the biggest decline since February 2011. That was down from a two-year high of 382,000 in May.
Most economists say a healthy market has annual sales of new homes closer to 700,000. And the home sales could stumble further if economic growth and employment stay weak.
While newly constructed homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the builders' association.