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New residential construction picked up in June as builders focused on scaling up multifamily projects.

Housing starts rose 3% to a seasonally adjusted annual pace of 1.35 million units, according to data from the Census Bureau released Wednesday. Multifamily construction contributed to the gain last month. New construction of five or more units climbed to a seasonally adjusted annual pace of 360,000, up from 295,000 the month prior.

“The rise in housing starts and building permits in June is not as good as it seems at first glance, as it was driven by gains in the volatile multifamily sector, which we think will prove temporary,” Thomas Ryan, an economist at Capital Economics, wrote after the release.

Single-family starts and permits, though, fell 2.2% and 2.3% month over month, respectively. It was the fifth consecutive monthly drop in single-family permits, signaling further weakness ahead.

The drop reflects the “argument that homebuilders are hesitant to start new projects given the large build-up of new homes for sale, which represents 9.3 months of supply at the current sales rate — the highest since November 2022,” Ryan added.

Homebuilder stocks lost steam Wednesday on the heels of the fresh government data. The SPDR S&P Homebuilders ETF (XHB) fell 0.66%. D.R. Horton, Inc. (DHI), the biggest US homebuilder, slipped 0.6%, while Lennar (LEN) and Toll Brothers (TOL) dropped 0.6% and 0.5%, respectively, during morning trading.