WASHINGTON — U.S. home building fell last month, led by a drop in apartment construction, while developers broke ground on more single-family homes.

The construction of new houses and apartments declined 2.6 percent in January to a seasonally adjusted annual rate of 1.25 million, the Commerce Department said Thursday. The drop came after a much larger gain the previous month. Single-family housing starts rose 1.9 percent while apartment building dropped 7.9 percent.

Even with the decline, new home construction has increased 10.5 percent in the past year. That gain has been fueled by rising demand for homes as more Americans are looking to buy.

Yet many potential buyers are frustrated by a lack of available properties. The supply of existing homes fell in December to its lowest level since 1999. That has pushed up prices as buyers have had to bid against each other.

Home builders have responded by ramping up construction, but the increases haven’t been fast enough to relieve supply shortages.

Rising prices, a tight supply of homes and higher mortgage rates combined to slow sales of existing homes in December, when they fell 2.8 percent.

Still, home construction has largely recovered from the housing bust that began a decade ago. In 2016, builders started work on the most new homes since 2007, the year the Great Recession began.

Building permits, a gauge of future construction, rose 4.6 percent last month, led by a big gain in apartment permits. Single-family permits fell.

Home building increased the most last month in the Northeast, where housing starts soared 55.4 percent, and the South, with a 20 percent rise. Developers broke ground on the most new homes in the South in more than nine years.

Higher mortgage rates could exert a bigger drag on sales in the coming months. The average fixed-rate 30-year mortgage was 4.17 percent last week, down slightly from 4.19 percent the previous week.