WASHINGTON (AP) — The pace of U.S. home construction fell a sharp 4% in July despite strong demand from would-be buyers, held back by a shortage of skilled labor and affordable land.

The Commerce Department said Friday that housing starts slipped last month to a seasonally adjusted annual rate of 1.19 million units. So far this year, housing starts have declined 3.1%. Though there was a slight 1.3% uptick in the construction of single-family homes last month, the gain was offset by a 17.2% plunge in the apartment category.

The construction slowdown, which has persisted all year, is thwarting prospective homebuyers. The solid job market and falling mortgage rates have boosted interest among people seeking homes, yet the shortage of available homes and rising prices have dampened sales. The slowdown in construction, which in turn contributes to the scarcity of available housing, may contribute to a weakening of the overall economy.

Robert Frick, corporate economist at the Navy Federal Credit Union said that July's report showed that low mortgage rates were not enough to pull the U.S. homebuilding market out of its slump. The average rate on a 30-year fixed mortgage is just 3.6 percent, according to Freddie Mac, its lowest level since November 2016.

"A dearth of cheap lots and persistent labor shortages are constraining builders, especially for homes costing less than $300,000, which have the greatest demand," Frick said.

In July, home construction fell across the Northeast, Midwest and South. It rose 1.3% in the West, where home construction has fallen by 12.3% this year.

Some economists found cause for optimism in the report. Matthew Pointon, a property economist at Capital Economics, noted that while apartment construction is a volatile measure, last month's increase in construction of single-family homes was a sign of some improvement in the housing market.

"Single family starts are showing a slow recovery," he said.

Friday's construction report suggests that homebuilders may begin focusing more on the rental market.  Applications for housing permits, an indicator of future construction, rose 8.4%, and apartment complexes accounted for most of the increase.