First, the good news: Total housing starts were up in June, rising 3.0% from May to hit a seasonally adjusted annual pace of 1.35 million units, according to a report from the U.S. Census Bureau and the Department of Housing and Urban Development.

That’s above expectations, with a Reuters poll of economists projecting starts growing to a rate of 1.30 million units. However, the increase was entirely propelled by construction within the notoriously volatile multifamily sector, where starts can (and often) vary wildly from month to month. June building in the segment, which includes apartments and condos, jumped 19.6% to an annualized rate of 373,000 units.

Single-family starts, on the other hand, are down 2.2% from May’s upward revised total of starts, falling to an annualized pace of 980,000 units. That’s the slowest rate in eight months, suggesting that elevated mortgage rates are taking a toll on single-family homebuilding. Single-family permits were down, too, falling 2.3% from May, although total permitting was up 3.4% month over month.

“The June surprise to the upside is mostly a multifamily story,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “Single-family groundbreaking fell to the lowest level since October 2023. Building permits also exceeded consensus expectations, again fueled by an uptick in multifamily permits.”

Despite the single-family drop, Carl Harris, chairman of the National Association of Home Builders (NAHB), said that builders remain optimistic that activity will pick up.

“Lower single-family starts are in line with our latest builder surveys, which show that while builders are concerned about the current high interest rate environment, they believe that mortgage rates will moderate in the coming months and lead to higher construction in the latter part of 2024,” he said.

“With better inflation data, the Federal Reserve is expected to begin rate reductions later this year, and an improving interest rate environment will help buyers as well as builders and developers who are contending with tight lending conditions and high interest rates,” said Robert Dietz, chief economist at the NAHB. “And with home inventory at a relatively low 4.4 months’ supply, builders are prepared to increase production in the months ahead.”