HomeUS Home Prices Rise in April While Housing Activity Slows Down

US Home Prices Rise in April While Housing Activity Slows Down

The US housing market slowed down in April, as suggested by the number of housing starts and building permits requested. Housing prices remain elevated, with consumers expecting them to rise some more.

One of the key pieces of economic data released this week in the United States was related to the housing sector. Both Housing Starts and Building Permits for the month of April showed a decline in the US housing activity, but the price pressures persist.

The housing sector is critical to any economy and to the one in the United States in particular. Veteran traders remember the 2008-2009 Great Financial Crisis that started from the US housing sector. Today housing activity is reaching similar levels, with price pressures mounting.

Are we looking at another bubble, or is the housing market growing as the US economy is recovering?

US April Housing Sector – A Mixed Picture

The housing starts for the month of April declined by 9.5%, mostly driven by a slowdown in the housing activity in the South and Midwest. Despite the decline, rising demand and slow inventory are net positives for the sector. However, on the flip side, high input prices and supply shortages weigh.

One way to look at the decline in the housing activity in April is to consider the impact of higher lumber prices and material shortages in the market. The price of lumber rose by over 500% in the last twelve months before correcting, likely causing construction delays.

Another perspective of what happened in April is to look at the housing market’s activity through the eyes of the Housing Affordability Indices. Affordability improved during the pandemic, mostly fueled by changes in consumer behaviour and many families relocating from cities to the rural areas as remote working gained ground.

Finally, the real home price index in the United States is back to 2008-2009 levels. In other words, it shows that higher and rising prices affect buying intentions – as seen in April. Consumers, however, do expect housing prices to continue to rise, as suggested by a survey of consumers by the New York Fed.

Real estate is viewed as an alternative investment protecting against inflation, acting as a hedge against higher prices. As such, the US April data, which came out a bit disappointing, will be closely watched next month to see if the trend continues or if what happened in April was a one-off.

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