Total housing starts increased 3% to a 1.35 million annualized rate last month, driven by a 19.6% surge in multifamily construction, according to government data released Wednesday. Starts of one-family homes fell for a fourth straight month.

Building permits, a proxy of future construction activity, rose 3.4% to a 1.45 million annual rate, also driven by a pickup in applications for multifamily projects.

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Authorizations for single-family homes decreased 2.3% to the slowest pace in more than a year.

The strong pace of single-family construction seen at the end of last year is fading. The report also showed the number of homes under construction dropped to the lowest level since the start of 2022, suggesting builders are focused on keeping inventory more in line with demand. 

Before the report, the Federal Reserve Bank of Atlanta's GDPNow forecast penciled in a 2.8% annualized decline in residential investment during the second quarter.

Homebuilder confidence has sagged, too, with the latest index of builder sentiment compiled by the National Association of Home Builders and Wells Fargo now at a low point for the year.

The industry is counting on the Fed to start reducing interest rates soon, encouraged by an inflation report last week that showed price increases cooling across the economy. Mortgage rates have been stuck near 7% for months.

Builders have been trying to stoke sales by cutting prices and using incentives, such as buying down customers' mortgage rates. Thirty-one percent of builders reported cutting prices in July, up from the 29% who did so in June, according to the NAHB report.

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

The housing starts data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 7.5% decline to a 13.5% gain.