Home construction in the U.S. accelerated by the most in nearly four years in July, in the latest sign the housing sector is one of the few areas of strength in an economy suffering a record slowdown in the coronavirus pandemic.
House building increased 22.6 percent – the biggest gain since October 2016 – to a seasonally adjusted annual rate of 1.496 million units last month, the Commerce Department said on Tuesday.
The boom was largely driven by multi-family projects of five units or more, which surged by nearly 57 percent, while single-family construction rose by just 8.2 percent.
The largest increases in homebuilding last month were in the Northeast, up 35 percent from June, and the South, up 33 percent from the prior month. Construction starts were up by around 6 percent in the Midwest and West.
Fueling the surge were mortgage interest rates at their lowest level on record, with the average 30-year fixed rate dropping below 3 percent in July.
As well, mass movement of people during the pandemic may have fueled home sales and new construction outside of major cities.
A Pew poll from last month found that 22 percent of U.S. adults say they either changed their residence due to the pandemic or know someone who did.
July’s construction pace was the fastest since February, the month when a record-long U.S. economic expansion abruptly ended as the coronavirus began spreading rapidly around the country, triggering business shutdowns and widespread stay-at-home orders.
With last month’s increase, new home building is just 4.5 percent below February’s pace of 1.567 million units.
In addition to new home construction, maintenance and renovations have boomed with homeowners stuck at home in the pandemic.
Home Depot reported its biggest rise in quarterly same-store sales in at least two decades on Tuesday as demand for paint, tools and lawn mowers surged.
People spending more time on do-it-yourself home projects such as painting and gardening pushed Home Depot’s overall sales up 23.4 percent to a record $38.05 billion in the quarter ended August 2.
Shares of Home Depot, however, fell about 1 percent in midday trading after analysts cautioned that its sales might have hit their peak.
‘These are record comparable sales – it’s really tough to sustain that,’ Wedbush Securities analyst Seth Basham said. ‘We will see a slowdown in the back half of the year – the question is the degree to which the slowdown occurs.’
On Wall Street, the benchmark S&P 500 Index regained a record high in Tuesday morning trading, completing a full recovery from the stock market crash after the onset of the coronavirus crisis in February.
Shares of several leading U.S. homebuilders were also at a record, including DR Horton Inc and Lennar Corp. Shares of both are up around 40 percent this year.
On Monday, the National Association of Home Builders reported confidence among housing construction firms surged this month to match a record high.
On Friday, the National Association of Realtors is expected to report sales of previously owned homes accelerated for a second month, to the fastest rate since February.
‘Strong demand and a record level of homebuilder confidence will support housing starts in the second half of 2020, but the still-widespread coronavirus and an economy struggling to recover without fiscal support may limit the upside,’ Oxford Economics economists wrote in a note after the housing starts release.
Building permits issuance, considered a more forward-looking gauge of residential construction activity, also accelerated in July. Permits issuance totaled 1.495 million units at an annualized rate, up 18.8 percent from 1.258 million in June.