Single-family production remained at a slow pace in February as builders continue to wrestle with elevated mortgage rates, high construction costs and tightening credit conditions that threaten to be exacerbated by recent turmoil in the banking system, according to an analysis by the National Association of Home Builders (NAHB).

Led by gains in apartment construction, overall housing starts in February increased 9.8 percent to a seasonally adjusted annual rate of 1.45 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The February reading of 1.45 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months, the NAHB said. Within this overall number, single-family starts increased 1.1 percent to an 830,000 seasonally adjusted annual rate. However, this remains 31.6 percent lower than a year ago. The multifamily sector, which includes apartment buildings and condos, increased 24 percent to an annualized 620,000 pace.

“Builders continue to grapple with increased market uncertainty due to ongoing building material supply bottlenecks, volatile mortgage rates and increased jitters in the banking sector,” Alicia Huey, chairman of the NAHB and a custom homebuilder and developer from Birmingham, Ala., said “At the same time, builder sentiment has been edging higher in the early part of 2023 as a significant amount of housing demand exists on the sidelines and resale inventory is limited.”

Compared with the previous month, combined single-family and multifamily starts were 16.5 percent lower in the Northeast, 70.3 percent higher in the Midwest, 2.2 percent higher in the South and 16.8 percent higher in the West.

“Despite persistent supply-side challenges, rising builder confidence is signaling a turning point for homebuilding later in 2023,” NAHB Chief Economist Robert Dietz said. “Starts were up in February given a limited pullback for interest rates. We expect volatility in the months ahead as ongoing challenges related to construction material costs and availability continue to act as headwinds on the housing sector. However, interest rates are expected to stabilize and move lower in the coming months, and this should lead to a sustained rebound for single-family starts in the latter part of 2023.”

Overall permits increased 13.8 percent to a 1.52-million-unit annualized rate in February. Single-family permits increased 7.6 percent to a 777,000-unit rate. Multifamily permits increased 21.1 percent to an annualized 747,000 pace.

Looking at regional permit data compared with the previous month, the NAHB said permits were 2.8 percent lower in the Northeast, 9.6 percent higher in the Midwest, 10.9 percent higher in the South and 30.0 percent higher in the West.