NEW YORK ( TheStreet) -- Housing starts rose in August, but homebuilders are still building far fewer homes than expected. Total housing starts for August was a seasonally adjusted annualized rate of 891,000, 0.9% higher than the downwardly revised July estimate of 883,000 and 19% above the August 2012 rate of 749,000. Economists polled by Bloomberg expected housing starts to rise to 915,000 from the original estimate of 896,000. Still, single-family housing starts rose 7% in August to a rate of 628,000 from July. Multi-family starts, which are more volatile, fell by nearly 10%. Building permits declined 3.8% from the upwardly revised July estimate of 954,000 to a seasonally adjusted annual rate of 918,000. Economists expected permits to rise to a rate of 950,000 from the original estimate of 943,000. Homebuilder confidence has been high in the last several months, but in the most recent survey , builders reported increasing hesitancy on the part of buyers as interest rates have risen. New home sales plunged more than 13% in July. Homebuilders are more sensitive to interest-rate hikes as they tend to cater to mortgage-dependent buyers. Housing starts have lagged other indicators in the recovery. One reason is the industry is still recovering from the housing bust and it has taken time for builders to ramp up. With household formation below normal, homebuilders have been wary of overbuilding. Homebuilders have also kept their inventory lean amid a shortage of labor and supplies and chosen to hike prices instead to boost their margins. But with the recent slowdown in the buying frenzy, builders may be rethinking those price hikes. Mortgage applications in the most recent week ended Sept. 13 climbed 11.2%, with the purchase index up 3% from a week earlier on a seasonally adjusted basis. Unadjusted, the purchase index was up 12% from the week earlier. But on year-over-year basis, applications were up only 1%, hardly robust. Still there is pent-up demand and the overall supply of homes for sale is still low on an absolute basis. A healthy recovery in housing starts is essential for the housing market to get back to normal.