WASHINGTON, Aug 15 Reuters U.S. singlefamily homebuilding fell sharply in July as higher mortgage rates and house prices kept prospective buyers on the sidelines, suggesting that the housing market remained depressed at the start of the third quarter.

Singlefamily housing starts, which account for the bulk of homebuilding, tumbled 14.1 to a seasonally adjusted annual rate of 851,000 units last month, the Commerce Department39;s Census Bureau said on Thursday. Homebuilding has now declined for five straight months.

Singlefamily housing starts dropped 14.8 on a yearonyear basis in July. The housing market has stepped down following a spring resurgence in mortgage rates. Residential investment, which includes home building, contracted in the second quarter after rising for three consecutive quarters.

Though mortgage rates have since retreated amid optimism that the Federal Reserve will cut interest rates next month, a jump in new housing inventory to levels last seen in early 2008 could limit any rebound in housing starts.

New construction had been buoyed by a dearth of previously owned homes for sale. But the stock of existing homes has also risen from historic lows. The average rate on the 30year fixedrate mortgage has declined to 6.45 from a peak of 7.22 in May.

A National Association of Home Builders survey on Thursday showed homebuilder sentiment fell to an eightmonth low in August. Builders blamed challenging housing affordability conditions for the fourth…