Housing construction jumped in July to the highest level in more than 17 years as the red-hot housing market showed no signs of slowing down even as mortgage rates began to rise.

The Commerce Department (search) said housing construction totaled 1.87 million units at a seasonally adjusted annual rate last month, an increase of 1.5 percent over the June level of 1.85 million units.

The gain, which lifted housing starts to the highest level since April 1986, was much better than expected. Many analysts had been expecting housing construction to cool a bit given the recent increase in mortgage rates.

Housing purchases and consumer spending overall have been the standout performers for the economy, which has struggled for almost two years to mount a sustainable rebound from the 2001 recession.

However, there are concerns that housing activity may falter in coming months as mortgage rates, which touched levels not seen in more than four decades, begin to rise.

After hitting a low of 5.21 percent in mid-June, rates for 30-year mortgages have risen by a percentage point to stand at 6.24 percent, according to last week's nationwide survey by mortgage giant Freddie Mac (search).

This increase in rates is expected to eventually cool demand for housing although analysts said at first there could be a scramble by would-be-buyers seeking to buy homes before rates move even higher.

The Federal Reserve (search) held the short-term interest rate it controls at a 45-year low of 1 percent at its August meeting and pledged to keep rates low for some time to come until the economy gains momentum.

This pledge was seen by analysts as an attempt by the Fed to keep longer-term interest rates, which are set by financial markets, from rising so quickly that they will choke off the economic rebound. However, so far, the Fed's efforts have not been very successful since long-term rates have continued to rise.

For July, the government said that builders began construction 1.52 million single-family homes, a 1.9 percent increase from June. The July level was the highest for single-family homes since November 1978.

Construction on apartment units fell by 1.8 percent last month to an annual rate of 319,000 units.

By region of the country, housing starts soared by 19 percent in the Northeast to an annual rate of 194,000 units.

Home and apartment construction was also up by 5.7 percent in the Midwest to an annual rate of 372,000 units and by 5.6 percent in the South to an annual rate of 872,000 units.

The only region of the country which saw construction decline in July was the West, where housing starts fell by 13.9 percent to an annual rate of 434,000 units.