New-home construction starts declined 1.1 percent in July from June's levels, but they were 21.5 percent higher than in the same month in 2011, the Census Bureau reported Thursday.
The July numbers put the industry on pace to start 746,000 one- to four-unit residences in a 12-month period - still about half what economists consider a normal market.
"The pre-bubble annual average level of new homes was 1.5 million," said Jed Kolko, chief economist at the real estate search engine Trulia.
For most economists, however, the more important number the Census Bureau reported Thursday was the level of residential building permits, a forward-looking indicator that was 6.8 percent higher in July than in June. That annualized rate reached 812,000, 29.5 percent higher than in July 2011.
Permits for single-family homes were 4.5 percent higher than in June, the bureau said.
"The housing market is continuing its comeback," said Joel L. Naroff of Naroff Economic Advisors in Holland, Bucks County.
The monthly drop in starts didn't worry him, Naroff said, because "these data do bounce around." But, he noted, "the total number of houses under construction continues to rise."
Developers are not taking out building permits unless they plan to start digging foundations soon, so there is little speculative home construction in most areas of the country, including the Philadelphia region. Builders here report that they are completing and selling houses, but that the construction of larger-scale developments common during the housing boom has not yet resumed.
In addition, many home builders say they are still finding it difficult to borrow money for new projects, also reducing speculative construction.
Multifamily construction continues to do well, as rising rents and the tightened credit rules that many potential home buyers face keep them in apartments.
Construction rose in the Midwest but declined in other areas of the country. In the Northeastern United States, the latest measure of home-builder confidence - released Wednesday by the National Association of Home Builders - showed a decline, indicating that hope for recovery among the region's developers was limited.
Not all sections of the country shared equally in the rise in building permits.
Kolko said construction activity was strongest in metropolitan areas with faster employment growth and lower vacancy rates, such as Austin and Houston, Texas; Charleston, S.C.; and the western Boston suburbs.
It was weakest in Chicago and Detroit, he said, as well as the parts of California, Nevada, and Arizona hardest-hit by the foreclosure crisis, where builders compete with cut-rate bank repossessions of houses constructed largely during the housing boom that ended in 2006-07.
"Strong demand and tight supply encourage builders to start new construction," Kolko said.
Though noting that permits were at a four-year high, economist Patrick Newport of IHS Global Insight in Lexington, Mass., cautioned that the housing recovery was proving to be slow.
"The market started to turn about two years ago," he said, and "since then, the level of permits has risen by only 230,000 units. We are expecting this slow pace to continue for about another year."
Eventually, provided that the economic recovery remains on track, Newport said, "the demographics will start to kick in - household formation will accelerate, and many young adults now living with parents will start moving out."
Still, he said, "We are not expecting housing starts to climb above the 1.5 million threshold until 2015."
Contact Alan J. Heavens at 215-854-2472, aheavens@phillynews.com, or follow @alheavens at Twitter.
