New-home construction in the United States climbed in July to the highest level in almost eight years, indicating the industry will pick up in the second half of the year.

Residential starts rose 0.2 percent to a 1.21 million annualized rate, the most since October 2007, from a 1.2 million pace in the prior month that was higher than previously estimated, a Commerce Department report showed Tuesday.

Rising employment and historically low mortgage rates are enticing buyers, while increasing prices induced by a lack of homes on the market is an incentive to start new developments. Data showing builder sentiment at a decade high in August underscores the view that the housing rebound will stay on track even as the Federal Reserve is poised to boost borrowing costs.

"There's enough demand and there's a little catch-up going on here in terms of housing construction," said Eric Green, head of U.S. economic research at TD Securities in New York, who projected a 1.2 million pace. "When we're adding homes like this, it has a significant multiplier effect on the economy, in housing-related retail sales, jobs, consumption. We are exactly where we want to be in housing."

Building permits decreased to a 1.12 million annualized rate. The 16.3 percent drop was the biggest since July 2008. They were projected to decrease to a 1.23 million rate after 1.34 million the prior month.

Authorizations have been see-sawing because of changes in legislation in the Northeast, where permits plunged by 60 percent last month. Still all four regions of the country saw declines in July.

The increase in starts last month was led by a 12.8 percent gain in construction of single-family houses, taking them to a 782,000 rate, the most since December 2007.

Work on multifamily homes, such as condominiums and apartment buildings, fell 17 percent to an annual rate of 424,000. Data on these projects, which have led housing starts in recent years, can be volatile.

Prospective home-buyers continue to face relatively low borrowing costs. The average 30-year, fixed-rate mortgage was 3.94 percent in the week ended Aug. 13, below last year's high of 4.53 percent reached in early January 2014, according to data from Freddie Mac in McLean, Va.