Housing starts dropped 0.6 percent in July for the second consecutive monthly decline, the Commerce Department reported yesterday.

The number of new homes started by builders during the month fell to a seasonally adjusted annual rate of 1.74 million, down from a revised annual rate of 1.75 million in June, when starts fell 3 percent. Despite the small decline last month, housing starts still were 47 percent above the depressed level of a year ago, when new houses were started at an adjusted annual rate of 1.19 million.

Housing starts had shot up in May almost 20 percent to an adjusted annual rate of 1.81 million units, the highest rate in 3 1/2 years.

Commerce Secretary Malcolm Baldrige said yesterday the July housing figures show "the initial burst of pent-up demand now behind us." He agreed with industry assessments that "some further softening may well occur in the months just ahead, especially in view of the recent climb in interest rates."

Harry Pryde, president of the National Association of Home Builders, said he expected "another month of strong housing production numbers" but he worried that "August could be the last good month before the descent of this housing cycle."

He predicted that rising mortgage interest rates, up two percentage points in the last three months, would slow the pace of housing starts to an annual rate of 1.4 million during the fourth quarter of 1983. "Builders won't build what they can't sell, and sales have already started falling as a result of rising interest rates."

Mark J. Riedy, executive vice president of the Mortgage Bankers Association, said the figures show housing "at the turning point." But even with a tapering off, which can be expected unless mortgage rates drop, he said, 1983 "will be a good year--but it won't be the great year that it could have been."

In July, starts of single-family houses dropped 12 percent to an adjusted annual pace of 1 million while starts of multi-family buildings rose 21 percent. The July rate for units in buildings with five units or more was 597,000, up 24 percent from June, while the rate for units in buildings with two to four units was 134,000, up 8 percent.

Building permits rose 3.1 percent in July, the fourth consecutive monthly rise, to an adjusted annual rate of 1.82 million units. Permits had inceased 7.7 percent in June to a rate of 1.76 million units. Although permits are considered a precursor of further construction activity, the mortgage bankers' Riedy noted that builders can "stockpile" housing permits. "They don't have to turn them into starts," he noted.

Jack Carlson, chief economist and executive vice president of the National Association of Realtors, also noted that a further decline in housing, which he also expects without a drop in interest rates, will affect other areas of the economy. "As fewer houses are built, declines in activity also are likely to be experienced in the businesses of appliance manufacturing, furniture makers, landscapers, plumbers, electricians and other housing related businesses," he said.