Single-family starts posted a solid gain in August on robust demand and moderating mortgage rates even as builders continue to grapple with challenges related to lot and labor shortages and elevated prices for many building materials.

Overall housing starts increased 9.6% in August to a seasonally adjusted annual rate of 1.36 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The August reading of 1.36 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 15.8% to a 992,000 seasonally adjusted annual rate. On a year-to-date basis, single-family starts are up 10.4%. The multifamily sector, which includes apartment buildings and condos, decreased 4.2% to an annualized 364,000 pace.

“Single-family starts were up in August as demand remains strong despite several supply-side challenges,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and custom home builder from Wichita, Kan. “The rise in single-family construction mirrors an uptick in NAHB’s latest builder survey. However, builders continue to face a challenging environment due to rising construction costs.”

“With the Federal Reserve expected to begin the first of a series of rate reductions today, the loosening monetary policy over the coming months will boost new home building by lowering the construction loan rates for builders,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “The rise in single-family permits is further good news for the industry, which was hit hard by tight monetary policy in the first half of this year.”

On a regional and year-to-date basis, combined single-family and multifamily starts are 2.1% lower in the Northeast, 1.9% lower in the Midwest, 4.6% lower in the South and 4.4% lower in the West.

Overall permits increased 4.9% to a 1.48 million unit annualized rate in August. Single-family permits increased 2.8% to a 967,000 unit rate. Multifamily permits increased 9.2% to an annualized 508,000 pace.

Looking at regional data on a year-to-date basis, permits are 0.7% higher in the Northeast, 2.1% higher in the Midwest, 1.1% lower in the South and 6.2% lower in the West.

Single-family units under construction fell to a count of 642,000—down 5.2% compared to a year ago. The number of multifamily units under construction has fallen to 867,000 units.