Housing starts in the U.S. fell in February from a three-yearhigh, showing the recovery in the residential real estate marketwill take time to develop.

Builders broke ground on 698,000 homes at an annual rate, inline with the median forecast of economists surveyed by BloombergNews and down 1.1 percent from a January pace that was strongerthan previously reported, Commerce Department figures showed todayin Washington. Building permits, a proxy for future construction,climbed to the highest level since October 2008.

The pace of home building was led by a jump in multifamilyconstruction that indicates demand for rental housing is increasingas Americans remain concerned about the prospects for single-familydwellings. Distressed properties and more foreclosures continue tothreaten the outlook for property values.

“The housing market continues to recover at a very gradualrate,” said Sal Guatieri, a senior economist at BMO Capital Marketsin Toronto, who forecast a 697,000 pace for housing starts. “Theincrease in permits likely flags further strength in the monthshead.”

Stock-index futures held earlier losses after the report ascommodities slumped on concern about an economic slowdown in China.The contract on the Standard & Poor's 500 Index maturing inJune fell 0.6 percent to 1,396.2 at 8:45 a.m. in New York.

The median estimate in a Bloomberg News survey called for a riseto 700,000. Estimates of the 80 economists surveyed by Bloombergranged from 650,000 to 775,000. The prior month was revised up to706,000, the highest since October 2008, from a 699,000 pace.

Permits increased to a 717,000 annual pace, the most sinceOctober 2008, today's report showed. They were projected to rise toa 686,000 annual rate, from 682,000 the prior month, according tothe survey median.

Construction of single-family houses fell 9.9 percent, thebiggest drop in a year, to a 457,000 rate. Work on multifamilyhomes that include townhouses and apartment buildings last monthadvanced 21 percent to an annual rate of 241,000.

The February homebuilding data compare with 608,800 housingstarts last year, up from 586,900 in 2010 and reflecting gains inmultifamily construction. They totaled 554,000 units in 2009, thefewest since record-keeping began in 1959. During the past decade'shousing boom, starts reached a peak of 2.07 million in 2005.

Bloomberg News