U.S. housing starts declined more than expected in July, underscoring how lingering shortages of materials and workers continue to restrain activity.

Residential starts dropped 7 percent last month to a three-month low 1.53 million annualized rate, according to government data released Wednesday. Building permits, however, climbed 2.6 percent in July due to a pickup in applications for multifamily dwellings.

Housing starts were projected to cool slightly to a 1.60 million pace while construction permits were forecast to rise, according to the median estimates in a Bloomberg survey of economists.

Builders are scrambling to navigate material and labor constraints to construct homes and work down backlogs. A pickup in construction could boost the number of homes on the market and help slow the price gains that have led to a pullback in sales.

Lean inventory, high construction costs and a groundswell in housing demand have pushed prices skyward. A record share of respondents in a University of Michigan survey of consumers in August noted it was a bad time to buy a home because of high prices.

A recent decline in lumber prices paired with any improvement in the availability of supplies and labor should support future construction.

Meantime, the Federal Reserve has signaled it will be some time before policymakers raise the benchmark interest rate, suggesting borrowing costs will remain favorable for some time.

While applications to build increased to an annualized 1.64 million units in July, permits for single-family homes dropped to a one-year low. A measure of homebuilder sentiment out Tuesday fell for a third month to its lowest level in a year, underscoring how high materials’ prices and ongoing supply shortages are weighing on builders.

The data suggest backlogs remain elevated. The number of one-family homes authorized for construction but not yet started — a measure of backlogs — was little changed at 145,000.

Digging deeper

Single-family starts declined 4.5 percent to an annualized pace of 1.11 million units.

Multifamily starts — which tend to be volatile and include apartment buildings and condominiums — decreased 13.1 percent to 423,000.

Ground-breaking declined in three of four regions. The South, the nation’s largest market, rose 2.1 percent due to more multifamily projects.

Data on sales of new and existing homes will be released next week.