U.S. single-family starts surged in September, pointing to sustained housing market strength even as a drop in the construction of multi-family dwellings pushed overall home building activity to a 1-1/2-year low.

Groundbreaking on single-family housing projects, which accounts for the largest share of the residential housing market, jumped 8.1% to a 783,000-unit pace last month, the Commerce Department said on Wednesday. That was the highest level since February. 

A tightening labor market, which is steadily pushing wages higher, as well as low mortgage rates are underpinning demand for housing. Single-family starts are also getting a boost from a chronic shortage of previously owned homes available for sale.

Overall groundbreaking activity, however, declined 9.0% to a seasonally adjusted annual pace of 1.05 million units last month, the lowest level since March 2015. It was dragged down by starts for the volatile multi-family segment, which plunged 38.0% to a 264,000-unit pace in September. 

But with rents rising at their fastest pace in 10 years, last month's drop in multi-family starts is likely to be temporary. 

U.S. financial markets were little moved by the data.

Economists polled by Reuters had forecast overall housing starts rising to a 1.18 million-unit pace in September. Last month's decline left overall housing starts in the third quarter well below their average for the second quarter. 

That suggests residential construction remained a drag on gross domestic product in the third quarter after subtracting from output in the April-June period. 

Overall home building activity is likely to rebound in the coming months, as permits for future construction surged 6.3% in September to their highest level since last November. Single-family permits rose 0.4% last month; approvals for multi-family units soared 16.8%.

Last month, single-family home construction jumped 20 % in the Northeast. Starts in the South, which accounts for the bulk of home building, vaulted 12.1%. 

Groundbreaking on single-family housing projects shot up 6.3% in the Midwest, but fell 2.2% in the West.