Flight to the suburbs increases housing construction in the United States, but COVID-19 surge erodes consumer sentiment

WASHINGTON (Reuters) – Housing construction in the US increased in June in nearly four years amid reports of growing demand for housing in suburbs and rural areas, as companies allow employees to work from their homes during the COVID-19 pandemic.

But a resurgence of new coronavirus infections across the country eroded consumer sentiment in mid-July, other data showed on Friday, threatening fledgling housing and economic recovery. Some virus hotspots in the populous southern and western regions have closed businesses again or have slowed the reopening.

The economy fell into recession in February.

“Home construction is coming back at a steady, albeit unspectacular, rate,” said Robert Frick, corporate economist for the Navy Federal Credit Union in Vienna, Virginia. “The numbers also verify that many people are leaving, or planning to leave, for large cities, as telecommuting becomes the norm for many companies.”

Home starts increased 17.3% to a seasonally adjusted annual rate of 1,186 million units last month, the Commerce Department said. The percentage increase was the largest since October 2016. May data was revised to a rate of 1,011 million units from the 974,000 previously reported.

Still, home construction remains 24.3% below its February level. The south and west accounted for about 75% of the homes started last month. Economists polled by Reuters had predicted the increase would start at a rate of 1,169 million units.

A survey conducted on Thursday showed confidence among single-family home builders who jumped in July to the levels that prevailed before the coronavirus crisis overturned the economy in March.

Builders reported increased demand for single-family homes in low-density markets, including small metropolitan areas, rural markets, and large metropolitan suburbs. The public health crisis has moved office work from business districts to homes, a trend that economists predict could become permanent.

Housing demand is being backed by cheaper mortgage rates. The 30-year fixed mortgage rate is an average of 2.98%, the lowest since 1971, according to data from the mortgage financing agency Freddie Mac.

But with the staggering 32 million Americans who collect unemployment checks and lumber prices to a maximum of two years, a strong housing market is unlikely. Unemployment could worsen as new cases of respiratory illness soar without a coordinated national effort to control the spread of the virus.

In a separate report on Friday, the University of Michigan said its consumer sentiment index fell to a reading of 73.2 in mid-July “due to the widespread resurgence of the coronavirus” of 78.1 in June. He warned that there are likely to be further declines in the coming months.

The United States reported at least 77,000 new cases of COVID-19 across the country on Thursday, a record daily jump in known infections for the seventh time this month, according to a Reuters count.

“Sentiment is likely to remain subdued in the absence of a more substantial health response that results in better containment of the virus and avoids repeated closings that cause more permanent damage to the labor market,” said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York.

Shares on Wall Street fell when investors worried about the explosion in coronavirus cases. The dollar slipped against a basket of coins, while US Treasury prices rose.

BUILDING PERMITS INCREASE

Home construction last month was driven by a 17.2% jump in the construction of family home units, which accounts for the bulk of the real estate market, at a rate of 831,000 units. Innovative activity increased in the Midwest, South and Northeast, but fell in the West.

The beginnings are likely to advance further in the coming months. Permits for future home construction increased 2.1% to a rate of 1,241 million units in June, placing them well ahead of the start. Single-family building permits soared 11.8% at a rate of 834,000 units.

Beginnings for the volatile multifamily housing segment increased 17.5% at a rate of 355,000 units. But multi-family building permits fell 13.4% to a rate of 407,000 units.

“There was a trend towards multi-family construction, but this could be reversed if the experience with the pandemic results in the reported urban flight becoming a longer-term phenomenon,” said Conrad DeQuadros, chief economic adviser at Brean Capital in New York. York.

There was also an increase last month in home completions, although the stock of homes under construction fell. That, coupled with the rise in innovative and building permits, could help alleviate an acute shortage of homes for sale that has limited the property market.