Housing starts fell 5% in August from the prior month, with the rate falling to 571,000 units on an annualized basis, compared to 601,000 units in July. Starts also declined 5.8% from a year earlier when the annualized rate hit 606,000 units. Single-family housing starts fell 1.4% to 417,000 units in August, down 2.7% from July, but up 2.6% from a year ago. "The further fall in housing starts in August adds to other evidence, such as the recent drop in consumer confidence and fall in mortgage approvals, suggesting that demand for new homes remains close to rock bottom," analysts at Capital Economics said. "This goes some way to explaining why equity prices of homebuilders have recently fallen by more than the wider market." The home completion rate hit 623,000 units in August, down 2.7% from the July estimate of 640,000 and 2.6% higher than 607,000 in August 2010. As housing starts declined, building permits went up in August to an annualized rate of 620,000 filings, up 3.2% from July and 7.8% higher than a year earlier permits hit an annualized rate of 575,000 units.

"A rebound in permits suggests that some of the weakness in starts was weather related as Hurricane Irene likely weighed on new groundbreaking in the Northeast and parts of the South," according to analysts with Econoday. "In contrast to starts, housing permits rebounded 3.2%, following a 2.6% contraction in July. Permit issuance is less affected by weather since they are issued indoors."

Write to Kerri Panchuk.