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story.lead_photo.caption A “sold” sign sits on a lot as new home construction continues in Westfield, Ind., in September. U.S. home construction rose 1.9% last month after having fallen in August.
(AP/Michael Conroy)

WASHINGTON -- U.S. new-home starts increased 1.9% in September on a sharp gain in single-family construction while building permits climbed, indicating residential building had plenty of momentum at the end of the third quarter.

The increase last month pushed home construction to a seasonally adjusted annual rate of 1.42 million homes and apartments after a 6.7% drop in August, the Commerce Department reported Tuesday.

Applications for building permits, a good barometer of future activity, rose an even stronger 5.2% to 1.55 million units, the fastest since 2007 and topping forecasts.

After a plunge in the spring because of pandemic-related lockdowns, housing has staged a solid rebound as demand for homes with more space has grown and mortgage-rates have stayed at ultralow levels.

Construction of single-family homes in September surged by 7.8%, offsetting a 14.7% drop in the smaller apartment sector. Single-family construction is now at its highest level since 2007.

"Rock-bottom mortgage rates and families looking for more space are fueling demand and more than offsetting the impact of labor market turmoil," Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc, said in a note. "We continue to believe that the single-family sector will lead the way up for housing, with multifamily providing somewhat of a negative offset."

Construction was up in every region of the country except the Midwest which registered a 32.7% plunge. Construction surged 66.7% in the Northeast with smaller gains of 6.2% in the South and 1.4% in the West.

Economists believe homebuilding will continue to thrive in the months ahead.

"Strong demand, low inventory and a record level of home builder confidence continue to support new home construction," wrote Nancy Vanden Houten of Oxford Economics.

The National Association of Homebuilders reported Monday that its survey of builder confidence climbed to a new record high of 85 in October, up from a September reading of 83.

Housing has been a highlight for the economy during the recovery from the covid-19 pandemic. The recent upswing in residential real estate shows few signs of slowing as mortgage rates continue to fall to new lows, helping explain record-high optimism among the nation's builders.

The government's most-recent report on new-home sales showed that in August, the supply of properties would last 3.3 months, the shortest time frame in records back to 1963.

At the same time, the damage to the job market caused by the measures aimed at controlling the spread of the coronavirus remains a head wind. Millions remain unemployed and Congress has yet to agree on a new relief package to support the jobless and small businesses. Other restraints on the residential real estate market and construction include higher costs for building materials.

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Jarrell Dillard of Bloomberg News.

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