By Lucia Mutikani

WASHINGTON (Reuters) – Sales of new U.S. single-family homes raced to a near 13-year high in June as the housing market outperforms the broader economy amid record low interest rates and migration from urban centers to lower-density areas because of the COVID-19 pandemic.

The upbeat report from the Commerce Department on Friday followed on the heels of data this month showing a surge in homebuilder confidence in July, and an acceleration in home construction and sales of previously owned houses in June.

The coronavirus crisis has led companies to allow employees to work from home. The emergence of home offices and schooling has fueled demand for spacious homes in small metro areas, rural markets and large metro suburbs. Housing market strength could help to shore up the retail sector as homeowners buy furniture, garden equipment and other supplies

“Housing has a strong immune system,” said Michelle Meyer, chief U.S. economist at Bank of America Securities in New York. “The shock disproportionately impacted the lower-income population who are less likely to be homeowners.”

New home sales rose 13.8% to a seasonally adjusted annual rate of 776,000 units last month, the highest level since July 2007. May’s sales pace was revised upward to 682,000 units from the previously reported 676,000 units.

New home sales have now recouped losses suffered when non-essential businesses were shuttered in mid-March to slow the spread of the respiratory illness. New home sales are counted at the signing of a contract, making them a leading housing market indicator.

Economists polled by Reuters had forecast new home sales, which account for about 14% of housing market sales, rising 4% to a 700,000-unit pace in June. New home sales accelerated 6.9% from a year ago in June.

But a resurgence in new COVID-19 infections, which has forced some authorities in the hard-hit South and West regions to either shut down businesses again or pause reopenings, could slow the housing market momentum.

In addition, the labor market recovery appears to have stalled, with the number of Americans claiming unemployment benefits rising last week for the first time in nearly four months. A staggering 31.8 million people were receiving unemployment checks in early July.

Job losses have disproportionately affected low-wage workers, which could explain why the housing market is doing much better than other sectors of the economy, which slipped into recession in February.

HISTORICALLY LOW MORTGAGES

Sky-rocketing coronavirus cases are casting a shadow over business activity, though output is stabilizing. A separate report on Friday from data firm IHS Markit showed its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 50.0 this month from 47.9 in June. The increase ended five straight monthly declines.

A reading above 50 indicates growth in private sector output. IHS Markit said some service providers were struggling with the reintroduction of lockdown measures. The survey’s flash composite new orders index slipped to a reading of 49.5 this month from 49.9 in June.

Stocks on Wall Street were trading lower as U.S.-China tensions and fears over mounting COVID-19 cases weighed on investor sentiment, erasing all gains for the benchmark S&P 500 index so far this week. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.

Still, the fundamentals for housing, which accounts for just over 3% of economy, remain favorable. The 30-year fixed mortgage rate is averaging 3.01%, close to a 49-year low, according to data from mortgage finance agency Freddie Mac. There are more first-time buyers in the market, with the average age 47 years.

“This demographic is less likely to have been impacted by unemployment, will be more financially secure and have a better credit history versus younger members of the population who are more likely to work on lower wages in retail and hospitality,” said James Knightley, chief international economist at ING in New York.

“Older home buyers are also more likely to be looking for an investment property or a vacation home.”

In June, new home sales soared 89.7% in the Northeast and jumped 18% in the West. They increased 7.2% in the South, which accounts for the bulk of transactions, and advanced 10.5% in the Midwest. The median new house price increased 5.6% to $329,2000 in June from a year ago. New home sales last month were concentrated in the $200,000 to $400,000 price range.

There were 307,000 new homes on the market in June, down from 311,000 in May. At June’s sales pace it would take 4.7 months to clear the supply of houses on the market, down from 5.5 months in May. More than 60% of the homes sold last month were either under construction or yet to be built.

(Reporting by Lucia Mutikani; Editing by Jonathan Oatis and Andrea Ricci)