US home construction falls a surprise 9.5% in April

US home construction falls a surprise 9.5% in April

U.S. home construction fell a surprisingly sharp 9.5% in April

By MARTIN CRUTSINGER AP Economics Writer

May 18, 2021, 8:32 PM

• 3 min read

A carpenter aligns a beam for a wall frame at a new house site in Madison County, Miss., Tuesday, March 16, 2021. U.S. home construction fell by a bigger-than-expected amount in April but the drop came after housing had risen to the highest level in 15 years. The Commerce Department said Tuesday, May 18, that construction dropped 9.5% in April to a seasonally adjusted annual rate of 1.57 million units. % in April to an annual rate of 1.76 million units, a good sign that the April dip in construction will be temporary. (AP Photo/Rogelio V. Solis)

WASHINGTON -- U.S. home construction fell a surprisingly sharp 9.5% in April and economists attributed that partially to builders who delayed projects because of a surge in lumber prices and other supply constraints.

The April decline left construction at a seasonally adjusted annual rate of 1.57 million units, the Commerce Department said Tuesday. That was down from a rate of 1.73 million units in March, which had been the best showing since homes were constructed at a rate of 1.74 million units in July 2006 at the peak of that decade's housing boom.

Applications for building permits, considered a sign of future activity, rose 0.3% in April to an annual rate of 1.76 million units, suggesting that the April construction dip will be temporary.

Economists linked the April decline to reports of builders delaying projects because of soaring lumber prices and snarled supply chains that have made it difficult to get products like appliances.

The price of lumber alone has added $35,872 to the price of an average single-family home, according to the National Association of Home Builders. Part of those increases are border taxes imposed by the Trump administration in a trade dispute with Canada. There was also a temporary shut-down in production when the pandemic hit a year ago.

Even with the higher prices, economists expect housing, one of the stand-out economic performers in the pandemic, will continue to show strength in 2021.

“Strong demand, a need for inventory and homebuilder optimism will support housing starts over the rest of 2021, while record-high lumber prices and supply chain bottlenecks may act as headwinds,” said Nancy Vanden Houten, lead economist at Oxford Economics.

She predicted housing construction would hit 1.6 million units this year, up from 1.38 million last year. That would be the best annual showing since 2006.

Part of that optimism reflects upbeat builder sentiment. A monthly survey by the home builders association and Wells Fargo released Monday showed builder confidence held steady at a high reading of 83 in May, unchanged from April.

“In recent months, aggregate residential construction material costs were up 12% year-over-year and our surveys suggest those costs are rising further," said Robert Dietz, chief economist for the home builders. “Low interest rates are supporting housing affordability in a market where the cost of most materials is rising.”

The construction weakness in April reflected a 13.4% drop in construction starts for single-family homes, which declined to an annual rate of 1.09 million units. Construction of apartments with five units or more rose by 4% to 470,000 units.

The April decline in construction was led by a 34.% fall in the Midwest followed by an 11.5% drop in the South. Construction rose 9% in the West and was up 6.2% in the Northeast.

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