Construction starts on new homes increased 0.9 percent from July to August, though the gains were only made possible by a downward revision to July's building rate. Starts increased 19 percent year-over-year, nudged upward by improvements in single-family homebuilding.

Housing starts rose to a seasonally adjusted annual rate of 891,000 units in August, driven by a 7 percent increase in single-family homes. While starts remain below the five-year high of just over 1 million they hit in March, the growth in single-family homes indicates continued stability in the housing market's recovery.

The Commerce Department's September 18 report also revised July's starts rate downward to an 883,000-unit pace, falling from the 896,000-unit pace originally announced in the July report. Single-family starts, which account for the biggest share of the new-home market, increased in all major regions, while the multifamily category, which is prone to volatile swings, fell 11 percent.

Building permits, an indicator of future construction, fell 3.8 percent in August overall, though they rose 3 percent to 627,000 for single family homes, their highest level since May 2008. Single-family permits rose in every region except the Northeast, where they were flat.

Recent data has shown signs of softening demand for housing after a rapid run-up in prices and as mortgage rates rise from historically low levels. The average rate on a 30-year fixed-rate mortgage stood at 4.57 percent last week, according to Freddie Mac, still a historically low level but higher from the spring, when rates dipped below 3.5 percent.