The rebound in U.S. apartment and condominium construction, a sign of strength for the nation's multifamily sector, is projected by one of the nation's biggest mortgage lenders to slow through the rest of the the year.

The Commerce Department reported Tuesday that multifamily construction starts rose 15% in June from May, when they had declined from the previous month, and were up 16.4% from a year earlier.

The number of apartment and condo projects with five units or more that have been authorized but haven't started construction inched up 3.9% in June from May and jumped 42.6% from last year. Multifamily building permits issued in June were up 13.1% from May and up 27.8% from last year. And new units under construction in June increased just 1% from May but reached the highest level in the past 12 months, the Commerce Department reported.

That demand comes amid a national economy that's facing rising interest rates and inflation that has been at 40-year highs. Some apartment investors have said they expect the higher interest rates to dissuade renters from buying houses because the rates are boosting home mortgage payments.

Doug Duncan, chief economist of government-sponsored multifamily lender Fannie Mae, said in a statement that his organization expects "multifamily construction to soften as the year progresses, but for it to remain comparatively resilient as rental demand remains strong."

Duncan agreed with investors who have said potential homebuyers are likely to continue renting apartments because of higher mortgage rates. Construction starts of single-family homes fell to their lowest level in two years in June as higher mortgage rates dampen demand, according to Fannie Mae.

The prediction from Fannie Mae is significant, because it's one of the biggest mortgage lenders in the country for multifamily real estate, and it securitizes loans, making it a major force in the apartment lending business.

Higher construction and labor costs as well as rising interest rates and inflation are weighing on builders, Fannie Mae said in a market analysis in May. Apartment rents have risen on higher demand and to help offset increased expenses.

“Even though supply chain disruptions appear to be improving, elevated prices are likely here to stay,” Francisco Nicco-Annan, a Fannie Mae economist, wrote in the commentary.

Single-family builders have experienced the same increases in construction costs. Homebuilder confidence plummeted in July to its lowest level since May 2020, according to the latest index from the National Association of Home Builders.

The costs and the surge in mortgage rates have pushed home prices up. “Significant segments of the home buying population are priced out of the market,” Robert Dietz, NAHB’s chief economist, said in a statement.

Limited single-family affordability is expected to continue fueling demand for apartment rentals and "should help support multifamily construction," Fannie Mae’s Duncan said.