Residential starts rose 0.2 percent to a 1.21 million annualized rate, the most since October 2007, from a 1.2 million pace the prior month that was higher than previously estimated, Commerce Department data showed Tuesday in Washington. The gain was led by single-family houses, the mainstay of the market.

While a drop in building permits indicates the industry's progress will be measured, its recovery from the recession is set on sound foundations, including an improving job market and growing household formations. That signals its momentum will probably continue into 2016, and won't be derailed by rising borrowing costs, given the prospect that Federal Reserve policy makers will lift interest rates only gradually.