Doug Carroll

USA TODAY

Housing starts dropped for the second straight month in June as construction fell off sharply in the South, the Census Bureau said Thursday.

Builders broke ground on new homes at a seasonally adjusted annual rate of 893,000, Census reported. That was the lowest level in nine months and down 9.3% from May's rate, which also was revised down.

New applications for building permits, a barometer of construction plans, fell 4% from May to their lowest level since January.

Although some economists speculated the South's surprising drop in building activity might be a one-month statistical quirk, Thursday's report provides another worrying data point about the state of the housing market's rebound and its ability to contribute to broader economic growth.

"This was a hugely disappointing report, especially in light of the substantial increase in new home sales during May, a pick-up in homebuilder confidence to a six-month high, and mortgage rates that have recently tracked lower," said Michael Dolega, senior economist at TD Economics.

He predicts the trend will turn around in coming months as job growth and falling unemployment rates boost incomes and put more people in a financial position to buy homes.

Single-family housing starts also fell 9% from May to a 575,000 annual rate — that's the weakest level since November 2012.

Construction starts plunged in the South, typically the USA's biggest region for home building. The rate of starts overall fell almost 30% and construction of new single-family homes was off about 20% from May.

The Census Bureau provided no explanation for the drop and economists were hard-pressed to identify one.

"To be fair, weather does not seem to have been an issue, but the fact that activity was seemingly suspended last month seems odd," said economist Omair Sharif, of RBS Americas, who foresees July figures rebounding in the region.

Growth in other regions wasn't enough to offset the drop in the South. The Midwest and the West both saw growth in starts overall and for single-family homes. In the Northeast, the rate of total starts rose, but single-family housing starts slowed from May.

Economists had forecast June housing starts overall would reach an annual pace of 1.02 million, according to the median estimate in Action Economics' survey.

Housing starts' most recent peak was November's annual pace of 1.10 million. The most recent low was in June 2013 — an 831,000 annual rate.

For the first half of this year, housing starts are up 6% from a year ago, but much of the growth has been in apartment buildings as builders chase a growing market of renters. Construction starts for larger multi-family unit housing are up about 18% in the first half, but ground-breakings for single-family homes are up only 1.2%.

Builders have cited a shortage of available lots and skilled construction workers among the factors holding back home building.

The state of housing is being closely followed by Federal Reserve policymakers as they weigh how soon and how fast to begin tightening their easy money policies that have been in place since the financial crisis started seven years ago.

"The housing sector ... has shown little recent progress," Fed Chair Janet Yellen said in testimony before Congress this week. "While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have, overall, continued to be disappointing.

Despite a sluggish market in the winter and early spring, home builders indicate they are feeling more confident about the market outlook for single-family homes.

The National Association of Home Builders/Wells Fargo Housing Market Index rose to 53 in July, up four points from June, and the highest in six months. Any reading over 50 indicates more builders view sales conditions for single-family homes as good than poor.