U.S. housing starts fell in July, but came in above expectations at 965k, representing a month-over-month decrease of 11.0%, according to data released from the U.S. Department of Commerce on Tuesday morning. The drop in the headline is misleading, however, as changes in the housing code of New York City raised June's housing starts and permits figures to elevated levels.

The consensus was looking for a decline to a level of 960k.

The previous month's 1.066 million figure was revised to a level of 1.084 million.

Single-family homes - the most important component in the report, accounting for four-fifths of housing starts - fell 2.9% to 641k, compared to the previous month's 660K.

Multiple-family homes contributed 324k, far lower than the previous month's 424k level, yet it must be kept in mind the gain in June was accounted for by the changes in the New York housing code.

Meanwhile, building permits totalled 937k in July, a decline of 17.7% month-over-month from an upwardly revised reading of 1.138 million last month and below the consensus call for 970k.

Housing starts refer to the number of homes being built and provide a sense of how the housing sector has performed in the previous month. Housing permits represent plans to construct new homes, an indicator of housing performance in upcoming months.

Prior to the release, TD Securities senior economics strategist Charmaine Buskas said the figures could be greeted by skepticism for several months, until the level of distortion from the New York housing code is better known.

The previous month's report explained: "New York City enacted a new set of construction codes effective for permits authorized as of July 1, 2008. In June, there was a large increase in building permits issued for multifamily residential buildings in New York City."

By Stephen Huebl and edited by Megan Ainscow