"Favorable interest rates, signs of an improving economy, healthy gains in home values and strong household formations are all fueling demand for new homes, and builders are responding to the times," said Kent Conine, president of the National Association of Home Builders (NAHB).

July's nearly 2 percent increase in single-family starts was at a seasonally adjusted annual rate of 1.52 million units. Multifamily housing starts in July were virtually unchanged from the previous month at a seasonally adjusted annual rate of 351,000 units, 0.6 percent below June's 353,000-unit pace. Construction of new homes and apartments rose in all but one region in July, with the West posting a nearly 14 percent decline. Housing permits, which can be an indicator of future building activity, declined 0.3 percent to a seasonally adjusted 1.42 million units.