New housing starts fell 1.5 percent last month to an annualized rate of 604,000 units, compared with 613,000 in June, the U.S. Commerce Department said Tuesday.

Many analysts expected the pace of construction of single-family homes to slow to 600,000 units on an annualized basis.

The decline reflects the continuing negative impact of foreclosures as the abundance of houses at bargain prices discourages new construction.

The U.S. housing market, which crashed in 2007, is also hampered by the large number of homeowners who have seen the value of their houses fall below what they owe on them, the tightening of lending standards for mortgages and persistent high unemployment.

Construction of single-family homes dropped 4.9 percent in July compared with the previous month.

Issuance of permits for new home construction - seen as a leading indicator - slipped 3.2 percent last month to an annualized rate of 597,000 units, the Commerce Department said.

With growing demand for apartments, July saw an increase of 6.3 percent in construction of buildings with five units or more.