New residential construction jumped a surprising 12.2% in August, as both single-family and multifamily starts increased from July’s pace, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development said in a press release.     

New construction of single-family homes rose 3.4% from July’s revised estimate to 935,000, while multifamily starts surged 28.6% to 621,000. On a yearly basis, single-family starts were down 14.6%, while multifamily remained strong, with a 31% increase.     

Altogether, the combined construction pace of single-family homes and buildings with five or more units was down 0.1% year over year, at 1,575,000 units.     

“The latest month’s increase is implying that builders still see profit opportunities even as they concede on prices,” National Association of REALTORS® chief economist Lawrence Yun said. “Material prices, including that of lumber, have been moderating, and fully completed homes are selling fast. Unfinished homes still under construction are the ones sitting on the market for long periods.” 

Permits, a leading indicator of future new-home supply, were down 10% compared to July and 14.4% below their year-ago rate in what First American deputy chief economist Odeta Kushi said is a “clear signal” that builders are slowing production because of cooling demand and ongoing cost challenges. 

“The decline in permits shows that builders are responding to the decline in affordability and cooling demand in the purchase market by building fewer single-family homes,” Kushi said. “A slowdown in new construction is concerning in the long-run because there remains a structural and long-term national shortage in the housing market.” 

Privately owned housing completions hit an annual rate of 1,342,000 in August, 5.4% lower than July and 3.1% above the previous year.