New-home construction fell to a three-month low in August, driven down by big drops in the multifamily sector, the often volatile Northeast and in single-family building in the Midwest.

The Commerce Department said Tuesday that starts in August were at a seasonally adjusted annual rate of 571,000, 5.0% below the revised July estimate of 601,000 and is 5.8% below the August 2010 rate of 606,000. The margins for error on the estimates were plus or minus 10.6% and 12%, respectively, both relatively high.

Wall Street was expecting starts to come in at 590,000.

Single-family housing starts were at a rate of 417,000, 1.4% percent below a revised July rate of 423,000 and 2.3% below August, 2010. Starts in multifamily dwellings with five units or more declined 12.4% from July to a pace of 148,000, 10.3% off last year's pace.

The Northeast dragged the other three regions down with a decline of 29.1% from July to a rate of 61,000 overall and a drop of 14.6% in single-family to a rate of 35,000. That represented a decline of 15.3% from August, 2010 overall but a rise of 6.1% for single family.

The largest region, the South, was down 3.3% overall to a pace of 292,000 but up 7.6% for single-family to a rate of 242,000, representing year-over-year increases of 1.7% and 9% respectively.

The West was up 2.2% to 138,000 overall, a 1.4% decline from August last year, and down 2.2% for single-family to a pace of 89,000, flat with last August.

The Midwest was up 2.6% to a pace of 80,000 overall, 25.2% off last year's pace, and down 22.7% for single-family to 51,000, a 38.6% drop from August, 2010.

The data on building permits in August was far more stable. Commerce said permits were at a seasonally adjusted annual rate of 620,000, 3.2% ahead of July and up 7.8% from August, 2010. In comparison, the margin for error on each of those data points was 1% for the month-to-month estimate and 1.4% for the year-over-year data. Analysts were expecting a pace of 590,000.

Single-family permits were up 2.5% from July and 2% from August last year to 413,000. Multifamily rose 0.6% to 178,000, up 19.5% from last August.

Regionally, permits were up 3.3% from July in the Northeast to 62,000 but down 10.8% for single-family to 33,000, down 11.4% and down 23.3% respectively from the August 2010 pace. The Midwest was up 6.3% overall to 102,000, 4.1% ahead of last August, and up 8.8% for single-family to 74,000, a gain of 4.2% year-over-year. The South was off 1.3% to 308,000 overall, 10% ahead of a year earlier, with single-family up 3.3% to 221,000, a 5.2% year-over-year gain. The West was up 11.3% overall to 148,000, up 16.5% from last August, with single-family up 1.2% to 85,000, up 4.9% year-over-year.

"Today's numbers are completely consistent with NAHB's forecast for the quarter, and are in keeping with the anemic economic and job growth we are seeing across most of the country," said Robert Denk, senior economist for the National Association of Home Builders. "That said, we continue to anticipate modest gains in new-home production through the end of this year with greater momentum building into 2013, and some pockets of improvement are already evident in about a dozen metros nationwide."

Michael Rehaut, home-building analyst at J.P. Morgan, took a similar view in a note to investors. "Despite the recent significant amount of market stress and macro uncertainty over the last few weeks, we continue to believe that housing demand effectively remains near its cyclical trough and is unlikely to retest its 4Q08/1Q09 lows, absent another material recession," Rehaut wrote. "Moreover, we believe supply continues to remain manageable, as existing homes for sale are 20% below peak levels and foreclosures continue to liquidate at a moderate pace."