Single-family homebuilding starts saw the largest monthly decline in nearly three years as overall starts had the biggest drop since the start of the pandemic, both defying Wall Street’s expectations.

Builders began work on 12.4% fewer single-family homes in March than in February, when construction surged, according to data released Tuesday by the Census Bureau. That's the largest monthly decrease since April 2021, when single-family starts fell nearly 15%.

Multifamily construction for buildings with five or more units came in lower too, clocking a 20.8% drop from the previous month.

Total housing starts came in at 1.32 million, a 14.7% decline since February and a 4.3% drop from the same time in 2023. March's decrease marks the biggest drop in total starts since the start of the pandemic in April 2020. Analysts had largely expected a smaller decline, estimating between 1.47 million and 1.48 million new housing starts.

March numbers include the Easter holiday and severe weather in some parts of the country, possible explanations for the dip in construction, according to economists at Wells Fargo. But there are bigger economic forces at play, too.

The weak data comes as a supply shortage has been a drag on the housing market. Supply has been further hampered by better-than-expected economic indicators — such as job gains and price growth — that have made the Federal Reserve cautious about lowering interest rates. It’s kept mortgage rates high, keeping homeowners in place and constricting the number of existing homes on the market. Apartment landlords have in turn raised rents as demand rises and supply struggles.

“Builders are grappling on several fronts as the inflation fight continues,” Carl Harris, chairman of the National Association of Home Builders and a custom home builder from Wichita, Kansas, said in a statement. “Higher interest rates are increasing the cost of housing for prospective home buyers and raising the development and construction cost for builders of homes and apartments. At the same time, shelter inflation is rising faster than overall prices due to supply-side challenges.”

Building permits, considered a more forward-looking measure of housing activity, also dropped. Total permits fell 4.3% month over month. Single-family permits declined 5.7% since February, but multifamily permits remained unchanged.

Industry professionals expect the slowing to continue. The National Association of Home Builders/Wells Fargo Housing Market Index — a combination of builder perceptions of current single-family home sales, sales expectations for the next six months and traffic of prospective buyers — remained unchanged in April after climbing four consecutive months. The index's forecast for the next six months of single-family new home sales dropped two points after four months of gains, data released Monday showed.

“Single-family starts were down in March as interest rates increased and multifamily production fell as builders faced tighter financing conditions,” Danushka Nanayakkara-Skillington, the National Association of Home Builders assistant vice president for forecasting and analysis, said in a statement. “And with single-family permits also down in March, single-family production will likely decline again in April.”

While supply remains constrained, there’s still some hope for the single-family housing market: Single-family building permits are up 17.4% since March 2023, and starts grew 21.2% over the same time.

“March data is indicating a loss of momentum for single-family construction,” Odeta Kushi, deputy chief economist for First American Financial Corporation, said on X, formerly known as Twitter. “But perspective is important: single-family groundbreaking is still up 21% compared to a year ago, and more than 20% higher compared to the five-year pre-pandemic average.”