The Commerce Department said Tuesday that builders began work on a seasonally adjusted 604,000 homes last month, a 1.5 percent decrease from June. That's half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market.
Single-family homes, which represent 70 percent of home construction, fell 5 percent.
Apartment building rose more than 6 percent. Building permits, a gauge of future construction, declined 3.2 percent.
Though new homes represent just 20 percent of the overall housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and about $90,000 in taxes, according to the National Association of Home Builders.
Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales. A short sale is when a lender allows the owner to sell for less than what is owed on the mortgage.
New-home sales fell in June to a seasonally adjusted pace of 312,000 homes per year. That's less than half the 700,000 per year that economists consider to be healthy.
One reason for the slow pace is that previously occupied homes are a better deal than new homes. The median price of a new home is more than 30 percent higher than the median price for a re-sale. That's more than twice the markup in healthy housing market.
The weak housing industry is also holding back the U.S. economy. In past modern-day recessions, housing accounted for 15 percent to 20 percent of overall economic growth. This time around, between 2009 and 2010, housing contributed just 4 percent to the economy.
U.S. homebuilders are just as pessimistic about the depressed housing market as they were two years ago.
The National Association of Home Builders said Monday that its survey of industry sentiment was unchanged at 15 this month. The index has been below 20 for all but one month during the past two years. The index is just seven points above the lowest reading on record, in January 2009.
Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.
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