July 19 -- Housing starts fell 5.3 percent to an annual rate of 1.85 million, the Commerce Department said today in Washington. Building permits, a sign of future construction, fell 4.3 percent to a 1.862 million rate, a three-year low.

Would-be homebuyers are moving to the sidelines, dissuaded by the highest mortgage rates in four years and prices that are still above year-ago levels. Reduced demand and an increase in contract cancellations are leading some builders to lower profit forecasts. Economists expect a slowdown in housing growth will help cool the economy this year.

Building permits were forecast to fall to an annual rate of 1.92 million, from 1.946 million in May.

Today's Commerce Department report showed starts of single- family homes fell 6.5 percent in June to a 1.486 million-unit rate, the lowest since November 2004. New construction of multifamily homes, such as townhouses, rose 0.3 percent to an annual rate of 364,000.

Starts fell in every region except the Midwest. They fell 12 percent in the Northeast to 170,000, 4 percent in the South to 911,000 and 10 percent in the West to 460,000. Starts rose 3 percent in the Midwest to 309,000.

The number of homes under construction fell 1.2 percent in June to a 1.381 million pace, the lowest since October. Housing completions rose 6.4 percent to an annual rate of 2.017 million.

The number of housing units authorized, but not yet started, rose 1.6 percent to 233,000.