New housing starts fall on lumber

US Housing Starts for April were much worse than expectations, coming in at an annualized rate of 1.569M vs an expectation of 1.71M and a revised 1.733M in March.  This turns out to be -9.5% for April vs -2.8% expected after a revised 19.8% in March!   Could this be the beginning of worse than expected housing data for the month of April?  On Friday, the US will release existing home sales for April. Next Tuesday, the US will release New Home Sales and next Thursday the US will release Pending Home Sales.   Today’s data was expected to be weaker than that of March, however, it wasn’t supposed to be this poor.  Why weren’t houses being built during April?  The most obvious place to look is to the price of lumber.     

What are economic indicators?

Lumber

The price of Lumber has been rising since June 2020, however during the month of April, price went parabolic, moving from 1006 on April 1^st to 1502.3 on April 30^th, an increase of nearly 50%.  Prices reached a high of 1711.2 on May 10^th.  Then: “TIMMMMMMMBBBBBEEEEERRRRR”  Price fell from the highs to today’s lows near 1264, a move of 447.2, or just over 26%!  Horizontal support is just below at the April 21^st lows near 1243.7. 

Source: Tradingview, City Index

On 240-minute timeframe, notice how the RSI signaled there could be a change ahead as it diverged with price. (However, that was quite a move before price actually turned).  Price closed Tuesday just below the 50% retracement level from the March 17^th lows to the May 7^th highs, at 1264.  The 61.8% Fibonacci retracement below the April 21^st lows is the next level of support at 1168.8.  Horizontal support beneath that is all the way down at 1030.3.  There is some horizontal resistance near 1481.5, and then just above there at the broken trendline near 1500.  After that, price can run all the way back up towards the all-time highs. 

Source: Tradingview, City Index

(Note that we can’t create Fibonacci retracements from the high to the current low because we don’t know where the low is for this move yet)

With the move higher in lumber in April, housing starts were worst than expected.  We’ll find out later in the week and next week if the higher lumber prices were passed through consumers buying new homes, and even existing homes!  But with prices moving lower in lumber this month, the data for May could be stronger!

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