Housing starts fell to a seasonally adjusted annual rate of 604,000, off from the revised June estimate of 613,000.
Permits issued for privately owned housing units also fell compared to June, dropping 3.2 percent below the revised June rate of 617,000.
Permits issued are an indicator of what direction construction starts might take one or two months down the road.
Permits issued were 3.8 percent above July 2010. Housing starts were 9.8 percent above July 2010, Commerce said.
Completed housing projects in July were estimated at a seasonally adjusted annual rate of 636,000, 11.7 percent above the revised June estimate of 569,000 and 9.5 percent above the July 2010 rate of 581,000.
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