U.S. home construction fell by an unexpectedly severe 9.5% in April after reaching a near-record high in March of this year. Economists theorize that the decrease came from postponed projects put off by builders facing surges in lumber prices.
In March, the U.S. saw the seasonally adjusted construction rate increase to 1.73 million, compared to the country's all-time peak at 1.74 million in 2006 during the height of the pre-2008 housing boom.
In April, housing construction fell to 1.57 million units compared to the 1.71 million units predicted by a Reuters economist poll.
While a shortage of previously-owned homes on the market may have helped offset the decrease, economists suspect that the fall in new construction can be blamed on clogged supply chains for appliances and skyrocketing lumber prices.
Lumber alone has increased the average price of a single-family home by $35,872, according to the National Association of Homebuilders. A portion of that price tag comes from Trump-era border taxes imposed during a trade dispute with Canada, as well as the slow down in production caused by the pandemic.
However, there are reasons to think that this dip may not be as significant in the long-term as it first appears. Economists expect housing construction to strengthen over the course of 2021, despite the current hurdles.
While construction fell, applications for building permits saw a 0.3% increase to an annual rate of 1.76 million units. Permit applications are generally seen as a sign of future trends in the home construction rate. It's worth noting, however, that permits for single-family home projects fell by 3.8% in April.
"Strong demand, a need for inventory, and homebuilder optimism will support housing starts over the rest of 2021, while record-high prices and supply chain bottlenecks may act as headwinds," Nancy Vanden Houten, lead economist at Oxford Economics, told the Associated Press.
In fact, Vanden Houten predicts that housing construction will reach 1.6 million units in 2021, second-best only to the annual showing in 2006.
Signs that the housing rate in April will rebound also come from the builders themselves. According to a monthly survey of home builders conducted by Wells Fargo, builder confidence in May was a strong 83, flat from April. Meanwhile, the National Association of Home Builders reported that "some builders are slowing sales to manage their own supply chains" during the current shortages.
Another reason to suspect that housing construction will increase in the coming months is relatively favorable interest rates. Robert Diaz, chief economist for home builders, told the AP that the 12% increase in aggregate residential building materials could be offset by the low-interest rates "supporting housing affordability in a market where the cost of most materials is rising."
Finally, it's a good season for construction because, as previously stated, there is currently a shortage of prior-owned homes being offered on the market. This means that homebuyers will have limited alternatives to new construction.
The decrease in construction didn't affect all parts of the country equally: in the Midwest, rates fell by 34%; the South saw an 11.5% drop. In comparison, construction saw a 6.2% increase in the Northeast and a 9% rise in the West.
The fall in construction rates also wasn't seen across all sectors. For instance, construction of apartment buildings with 5 or more units increased by 4%. On the other hand, single-family homebuilding, the largest share of the home-building market, fell by 13.4% in April.