WASHINGTON (REUTERS) - US housing starts rose less than expected last month as multi-family activity slowed sharply, but a surge in permits to build single-family homes pointed to a sustained strengthening in the housing market recovery.

The Commerce Department said on Wednesday housing starts increased 0.9 per cent to a seasonally adjusted annual rate of 891,000 units. July's starts were revised down to a 883,000-unit pace instead of the previously reported 896,000 units. Economists had expected groundbreaking to rise to a 917,000-unit rate last month.

Starts for the volatile multi-family segment tumbled 11.1 per cent to a 263,000-unit rate last month. But groundbreaking for single-family homes, the largest segment of the market, surged 7 per cent to a 628,000-unit pace. That was the highest since February and took some of the sting out the report. The drop in multifamily starts suggested a spike in mortgage rates could be making developers a bit cautious about taking on new projects.

Higher mortgage rates have slowed the pace of home sales, but demand for accommodation as household formation continues to recover from multi-decade lows is expected to keep residential construction supported.