Housing starts fell more than expected in August as groundbreaking for both single-family and multi-family units dropped, suggesting the economy will not get help from residential construction anytime soon.

Housing starts decreased the most since April, down 5.0 percent to a seasonally adjusted annual rate of 571,000 units, the Commerce Department said on Tuesday.

Offering a glimmer of hope for the sector, permits for future construction rose 3.2 percent.

Economists polled by Reuters had forecast housing starts to fall to a 590,000-unit rate in August. Housing starts are at less than a third of their peak during the housing boom.

The housing market is not only bad, but still missing low expectations, said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co in New York.

An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the economy's recovery from the 2007-09 recession.

On Monday, the National Association of Home Builders said already depressed U.S. homebuilder sentiment dipped in September.

It (the housing market) won't improve until the labor market improves substantially and that doesn't look like that would happen this year, said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

U.S. Treasuries prices pared early losses after the disappointing data, while stock futures rose as investors waited to see if the Federal Reserve would offer aid to a sputtering U.S. economy after a two-day policy review that begins today.

July's housing starts were revised down to a 601,000 unit pace, which was previously reported as a 604,000 unit rate.

Housing starts and completions may have been affected by tropical storms in August, including Hurricane Irene which pummeled the East Coast at the end of the month.

Starts in the Northeast fell 29.1 percent last month, a bigger decline than any other region. New residential construction fell 3.3. percent in the South.

Compared to August of last year, total starts were down 5.8 percent.

Housing starts for multi-family homes fell 13.5 percent to a 154,000-unit rate. Single-family home construction -- which accounts for a larger share of the market -- dropped 1.4 percent to a 417,000-unit pace.

New building permits rose to a 620,000-unit pace last month. Economists had expected overall building permits in August to fall to a 590,000-unit pace.

Permits were boosted by a 4.5 percent rise in the multi-family segment. Permits for the construction of buildings with five units and more increased 0.6 percent. Permits to build single-family homes climbed 2.5 percent.

New home completions fell 2.7 percent to a 623,000-unit pace in August.

(Additional reporting by Caroline Valetkevitch and Richard Leong in New York, Editing by Andrea Ricci)

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