Housing starts, building permits dip
Permits also decline in government report, but single-family construction shows signs of strength.
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NEW YORK (CNNMoney.com) -- Initial construction of U.S. homes edged lower in July following a surge in the previous month, according to government figures released Tuesday.
The report had some modest indications of stabilization. "A mixed bag this time around," said Mike Larson, real estate and interest rate analyst at Weiss Research, in a research note.
Housing starts fell to a seasonally adjusted annual rate of 581,000, down 1% from a revised 587,000 in June, the Commerce Department said.
Economists were expecting housing starts to increase to an annual rate of 599,000 units, according to a consensus estimate gathered by Briefing.com.
The recession has cut deeply into consumer demand and access to financing. Housing starts for July were 37.7% lower than the July 2008 rate of 933,000.
Meanwhile, applications for building permits, an indication of future construction activity, dipped 1.8% to a seasonally adjusted annual rate of 560,000 in July. Economists were looking for the forward-looking measure to increase to an annual rate of 577,000 units.
Building permits were 39.4% below the July 2008 rate of 924,000.
"Construction activity remains low, historically speaking," said Larson. "But evidence continues to mount that the worst of the declines for this cycle are behind us."
Single-family strength: One indication of strength was single-family housing starts, considered the core of the housing market, which managed to gain 1.7% in July after rising sharply the previous month. Single-family building permits rose 5.8% in July.
As the single-family segment showed signs of improvement, however, the multi-family segment continued to get hit hard, pulling topline numbers lower.
Going forward, Larson predicts the construction market will continue to struggle because of the oversupply of foreclosed properties available at bargain basement prices.
"Buyers still have plenty of homes to choose from, and distressed and foreclosed properties will continue to flood the market well into 2010," said Larson.
Regionally, the Midwest was the only part of the country with an increase in the rate of new homes being constructed, posting a 12.9% gain from June.
The Northeast suffered the most severe pullback, with housing starts down 16.3%. Starts dipped 1.4% in the South and 1.6% in the West. 
