(Corrects headline to show housing starts rose)
WASHINGTON, Sept 19 (Reuters) - U.S. housing starts rose less than expected in August as groundbreaking on multifamily home projects fell, but the trend continued to point to a turnaround in the housing market.
The Commerce Department said on Wednesday housing starts increased 2.3 percent to a seasonally adjusted annual rate of 750,000 units. July's starts were revised to show a 733,000-unit pace instead of the previously reported 746,000.
Economists polled by Reuters had forecast residential construction rising to a 765,000-unit rate. Compared to August last year, residential construction was up 29.1 percent.
Housing starts are now a third of their 2.27 million-unit peak in January 2006. The housing market, the Achilles heel of the recovery from the 2007-09 recession, is slowly healing.
Sales have been creeping up and the house price decline has bottomed, with a tightening supply of properties on the market raising prices in some metropolitan areas. In addition, homebuilder sentiment touched a six-year high in September.
Home building is expected to add to gross domestic product growth this year for the first time since 2005.
Though residential construction accounts for about 2.5 percent of GDP, economists estimate that for every new house built, at least three new jobs are created.
The Federal Reserve moved last week to bolster the economy, announcing it would buy $40 billion in mortgage-backed securities per month until the outlook for employment improved significantly.
Last month, groundbreaking for single-family homes, the largest segment of the market, rose 5.5 percent to a 535,000-unit pace -- the highest level since April 2010. Starts for multi-family homes fell 4.9 percent.
Building permits slipped 1.0 percent to a 803,000-unit pace in August after surging the prior month to the highest in four years. July's permits were unrevised at 811,000 units.
Economists had expected permits to fall to a 796,000-unit pace. Permits to build single-family homes rose 0.2 percent last month to a 512,000-unit pace. Permits for multi-family homes fell 3.0 percent to a 291,000-unit rate. (Reporting by Lucia Mutikani; Editing by Andrea Ricci)