The number of new housing starts increased last month thanks to growth in the multifamily sector. However, builder confidence continued to decline due to the rising costs of building materials, it was revealed last week.

The Department of Housing and Urban Development and the Census Bureau said last week that February housing starts, including both multifamily and single-family, increased 6.8% last month and are up 22.3% over a year ago.

Broken out, activity in the multifamily sector, which includes apartment buildings and condos, rose by 9.3% to an annualized pace of 554,000 units. That marks the best pace since January 2020. Economists expect the multifamily sector to continue to show strength over the coming months.

Meanwhile, the seasonally adjusted annual rate for single-family starts increased by 5.7% to 1.22 million. Supply chain delays and cost issues, however, are limiting the pace of home building in many markets.

“Builders continue to start homes as the demand for new construction remains solid in a market lacking inventory of previously owned homes,” said Jerry Konter, chairman of the National Association of Home Builders. “However, construction costs are rising too quickly, which threatens housing affordability conditions in 2022 as interest rates rise.”

In February, on a regional basis, combined single-family and multifamily housing starts were strongest in the Northeast, posting a 28.7% increase month over month, followed by a 15.3% increase in the Midwest and an 11.4% increase in the South. The West was the only region to register a decrease last month, with housing starts falling by 11.4%.

While the rising number of starts is an encouraging sign, builders are less optimistic due to the rising costs of building materials.

A report last week from the Bureau of Labor Statistics shows that building material prices are 20.4% higher than a year ago and have jumped 31.3% since January 2020. That is dampening builder confidence, which dipped in March for the third consecutive month, according to the latest reading from the National Association of Home Builders/Wells Fargo Housing Market Index.

Builders continue to report solid buyer traffic, but increasing development and construction costs are affecting their outlook. The March reading of the index showed the lowest future sales expectations since June 2020. Builders reported growing concerns that increasing construction costs and higher interest rates will price out more prospective home buyers from the market.

Prices for softwood lumber have soared 79.5% since last September. The “mill price” for framing lumber has more than tripled since last August, the NAHB reported on its blog, Eye on Housing. Other products like exterior and interior paint also continue to rise, jumping 30.3% and 21.2%, respectively, over the past year. However, in February, paint prices did hold relatively steady.

Another possible note of progress in building materials has been among steel mill products. Steel mill product prices fell 9.9% in February. That is the second consecutive decrease after increases each of the prior 15 months.