New housing construction unexpectedly rose in August to the highest level in five months, as builders started work on more apartment buildings and other multifamily homes, according to the Commerce Department.

Housing starts rose 0.4% last month, to a seasonally adjusted annual rate of 1.68 million units. Analysts had expected a 2% decline, to a 1.63 million-unit pace.

Starts of single-family homes fell as builders were slowed by shortages of skilled workers and some materials. Even so, the level of single-family housing starts is up 7% this year.

"Financing is still cheap," said Richard Yamarone, senior economist at Argus Research Corp. in New York. "There will be a slight moderation in housing, but it's still strong."

Mortgage interest rates rose to 8.15% in mid-August, the highest in more than two years, after falling to a 31-year low in September 1998.

During July, housing starts rose 3.9%, to a 1.67 million-unit rate. The increase was previously reported as 5.7%, to a 1.66 million-unit pace.

Starts of new-single family homes fell 1.3% in August, to 1.30 million units at a seasonally adjusted annual rate, from a revised 1.32 million-unit rate during July. Starts of multifamily homes rose 6.6% in August, to 372,000 units at a seasonally adjusted annual rate. The pace was 349,000 during July.

By region, housing starts rose 8.5% in the Midwest, to a 343,000 rate; 1.8% in the Northeast, to 172,000' and 1.1% in the South, to 758,000. They fell 7.4% in the West, to 403,000.

August permits for new housing construction fell 1.8%, to 1.61 million units at a seasonally adjusted annual rate. July permits were revised to a 1.64 million-unit rate.

Rising incomes, the lowest unemployment in three decades, and high consumer confidence have energized the housing market. Sales of new single-family houses rose in July to the second-highest level on record, the Commerce Department said last month. -- Bloomberg News

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