Construction starting on apartment and condominium projects in August hit the highest level in 36 years, but a drop in plans for future building signals a slowdown could be looming.

The Commerce Department reported Tuesday that multifamily starts rose 28.6% in August from the prior month to an annual rate of 621,000 units, the highest since April 1986.

Those numbers, along with an unexpected increase in single-family housing starts, helped drive overall residential construction starts up to an annual rate of 1.575 million units.

The number of multifamily building permits fell 18.5% in August to an annual rate of 571,000, signaling an eventual slowdown in apartment construction.

“We view the increase in starts in August as a result of the volatility of multifamily data,” Doug Duncan, the chief economist for mortgage financing provider Fannie Mae, said in a statement. “More concerning is the decline in permits.”

Duncan said that higher interest rates have “potentially limited financing opportunities for new projects,” similar to what has been slowing demand for new construction of single-family homes.

The figures come as consumers unable to qualify for a mortgage at higher interest rates are renewing their leases on residential rentals, leading to rents rising at a historically high pace.

Higher interest rates are in addition to increased construction costs, though those have been ebbing some as commodities such as lumber prices have dropped to near pre-pandemic levels.

Builders, however, still are dealing with supply chain problems for materials and a shortage of labor.

In August, the number of multifamily projects that were authorized but not started yet was 143,000 units, just shy of the record in July of 147,000 units.

The near record number of authorized units not underway stands out because it signals multifamily developers appear to still be very cautious about moving forward with breaking ground on new projects, said Jay Lybik, CoStar's national director of multifamily analytics.