Construction of U.S. homes rose in June by the most in nearly four years though hopes of a sustained recovery in the housing market may be fading due to the resurgence in COVID-19 cases.

The Commerce Department reported Friday that housing starts increased 17.3% to a seasonally adjusted annual rate of 1.186 million units last month — the largest gain since October 2016. Data for May was revised up to a 1.011 million-unit pace from the previously reported 974,000.

Economists had forecast starts increasing to a rate of 1.169 million units.

According to Reuters, the increase reflects “rising demand for housing in suburbs and rural areas as companies allow employees to work from home during the COVID-19 pandemic.” Housing starts had fallen 26.4% in April and 19.0% in March as the initial surge in COVID cases depressed activity.

“Home building is coming back at a steady, if unspectacular pace,” said Robert Frick, corporate economist at Navy Federal Credit Union. “The numbers also verify that many people are leaving, or planning to leave, big cities as telecommuting becomes the norm for many businesses.”

But homebuilding remains 24.3% below its February level and according to Reuters, “with a staggering 32 million Americans collecting unemployment checks and lumber prices at a two-year high, a robust housing market is unlikely.”

“It’s unclear whether the rebound is sustainable as [COVID] infections have spiked, especially in the South,” the Associated Press said.

The South and the West accounted for about 75% of housing starts in June, with builders reporting increased demand for single-family homes in lower density markets, including small metro areas, rural markets, and large metro suburbs.

Starts for the volatile multi-family housing segment jumped 17.5% to a pace of 355,000 units but multi-family building permits dropped 13.4% to a rate of 407,000 units.

“There had been a trend to multi-family construction but this could be reversed if the experience with the pandemic results in the reported urban flight becoming a longer-run phenomenon,” said Conrad DeQuadros, senior economic advisor at Brean Capital.

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