NEW YORK (CNN/Money) - Construction starts on new homes in the United States rose in July to their fastest pace in more than 17 years, the government said Tuesday, as the red-hot housing market showed little sign of cooling off despite a recent jump in mortgage rates.

The Commerce Department said housing starts rose 1.5 percent to a seasonally adjusted annual rate of 1.87 million units -- the quickest pace since April 1986 -- after rising a revised 5.7 percent in June.

Economists, on average, expected housing starts to fall to a 1.79 million-unit pace, according to a Reuters poll, in part because of a recent jump in mortgage rates.

"This reflects the low interest rates we saw earlier in the summer," said Paul Kasriel, senior economist at Northern Trust in Chicago. "While I wouldn't say that a major contraction is imminent yet, I suspect this is close to being the last hurrah."

Building permits, a more leading indicator of demand for new homes, fell 2.4 percent in July to an annual rate of 1.78 million units from a revised 1.82 million in June. Economists expected permits to fall to a 1.8 million-unit rate, according to Reuters.

U.S. stock market futures had little reaction to the report, continuing to trade higher, pointing to a positive opening on Wall Street. Treasury bond prices also rose.

The housing market has been one of the few bright spots in an otherwise mediocre economy, as super-low interest rates have enabled homeowners to refinance their mortgages at lower rates, cutting their monthly payments and allowing them to tap into surging home equity.

Mortgage rates have risen in recent weeks, driven by a startling gain in the 10-year Treasury yield. Rates are still low by historical standards, encouraging many last-minute buyers and refinancers to come into the market, but demand for refinancing has stalled, and demand for new-home loans also has slowed, though not as dramatically.

In the Commerce Department report, the annual pace of construction of single-family home sales jumped 1.9 percent from June's rate, while the pace of units housing five or more families fell 1.8 percent.

The Northeast saw a 19-percent jump in the pace of sales, while the West saw a 13.9 percent drop. Sales in the Midwest accelerated 5.7 percent, while sales in the South accelerated 5.6 percent.