Home construction is starting to pick up in multifamily construction

New U.S. home construction picked up in June, although a decline in single-family homes started to fall to an eight-month low, underscoring a real estate market challenged by high interest rates.

Total new home construction rose 3% last month to 1.35 million on an annual basis, driven by a 19.6% increase in multifamily construction, government data released Wednesday showed. The number of starters in single-family homes fell for the fourth month in a row.

Construction permits, a measure of future construction activity, rose 3.4% to 1.45 million annually, driven in part by an increase in applications for multifamily projects.

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Permits for single-family homes fell 2.3%, the slowest pace in more than a year.

The strong pace of single-family construction seen late last year is fading. The report also shows that the number of homes under construction has fallen to the lowest level since early 2022, indicating builders are focusing on keeping inventory more in line with demand.

Before the report, the Federal Reserve Bank of Atlanta’s GDPNow forecast projected a 2.8% year-over-year decline in residential investment during the second quarter.

Confidence among homebuilders has also fallenwith the latest index of builder sentiment, compiled by the National Association of Home Builders and Wells Fargo, now at a low for the year.

The industry is counting on the Fed to soon start cutting interest rates, encouraged by a rate cut inflation report Last week it emerged that price increases were cooling across the economy. Mortgage interest rates have been around 7% for months.

Builders have tried to boost sales by lowering prices and using incentives such as lowering customers’ mortgage rates. According to the NAHB report, 31 percent of builders reported cutting prices in July, down from the 29% who did so in June.

The Commerce Department report also shows a 10.1% jump in total housing completions to the highest level since 2007, fueled primarily by a rise in multifamily projects.

Housing market starts figures are volatile, with the government report showing 90% are confident the monthly change ranges from a 7.5% decline to a 13.5% increase.