U.S. housing starts increased 2.1 percent in July to a seasonally adjusted 1.21 million-unit annual rate, the NAHB said.

Citing U.S. government data, the National Association of Home Builders said it was the best month for housing starts since February.

Multifamily housing rose 5 percent to a seasonally adjusted 441,000-unit annual rate and single-family house increased 0.5 percent to 770,000 units.

NAHB Chief Economist Robert Dietz said figures could be even stronger if certain conditions improved.

"Single-family starts, on a year-to-date basis, are up 10.6 percent and builders are cautiously optimistic about market conditions," he said. "However, the permit trends indicate that supply side headwinds, such as shortages of lots and labor, continue to affect the housing sector."

NAHB Chairman Ed Brady, a builder and developer from Bloomington, Illinois, said apartments are especially strong.

"New household formations are upping the demand for rental housing, which in turn is spurring the growth of multifamily production," Brady said. "Meanwhile, single-family housing continues to hold firm."