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

Home construction starts rose 3% to a seasonally adjusted annual pace of 1.35 million units, according to Census Bureau data released Wednesday. Multi-family homes contributed to the profit last month. New construction of five or more units rose to a seasonally adjusted annual pace of 360,000, up from 295,000 the month before.

“June’s increase in new home additions and building permits is not as good as it first appears, as it was driven by gains in the volatile multifamily sector, which we believe will be temporary,” said Thomas Ryan, economist at Capital Economics, wrote after the release.

However, the number of starters and permits for single-family homes is declining month-on-month by 2.2% and 2.3% respectively. It was the fifth consecutive monthly decline in single-family permits, signaling further weakness.

The decline reflects the “argument that homebuilders are reluctant to start new projects given the large increase in new homes for sale, which equates to a supply of 9.3 months at the current sales rate – the highest since November 2022,” it added Ryan added.

Homebuilder stocks lost steam on Wednesday following new government data. The SPDR S&P Homebuilders ETF (XHB) fell 0.66%. DR Horton, Inc. (DHI), the largest U.S. homebuilder, fell 0.6%, while Lennar (LEN) and Toll Brothers (TOL) fell 0.6% and 0.5%, respectively, in morning trading.