WASHINGTON (Reuters) - U.S. single-family homebuilding dropped further in June, but activity is likely to rebound in the months ahead amid growing optimism the Federal Reserve will deliver a long-awaited interest rate cut in September.

Single-family housing starts, which account for the bulk of homebuilding, fell 2.2% to a seasonally adjusted annual rate of 980,000 units last month, the Commerce Department's Census Bureau said on Wednesday. Permits for future construction of single-family homes slipped 2.3% to a rate of 934,000 units.

Single-family housing starts increased 5.4% on a year-on-year basis in June. Homebuilding was strong for much of last year and through the first quarter of 2024 amid a dearth of previously owned houses on the market.

Momentum, however, fizzled as the average rate on a 30-year fixed-rate mortgage pushed back above 7% in April against the backdrop of high inflation and a strong economy.

With inflation subsiding and financial markets expecting a rate cut in September followed by additional cuts in November and December, mortgage rates have been trending lower.