What Are Housing Starts?

housing starts is the number of new projects for residential construction that began over the duration of any given month. Housing starts is a pivotal economic indicator. The U.S. Census Bureau, along with the Department of Housing and Urban Development (HUD), issues monthly housing starts data around the 17th of each month, which includes data from the previous month. For example, the housing starts data released on April 16, 2020, is for data from March 2020. 

Key housing and residential real estate statistics, which includes housing starts, are released by the Census Bureau as the New Residential Construction report. This report contains building permits, housing starts, and housing completions information generated via building permits surveys and the survey of construction (SOC), which query homebuilders across the U.S.

The report and data for all three major statistics is displayed, as well as the month-over-month and year-over-year change. For instance, the March 2020 housing starts for privately-owned homes was 1.216 million. This was a 22.3 percent decline from February 2020, but a 1.4 percent increase from March 2019. 

What Does It Mean If Housing Starts Increase or Decrease?

Housing data traces the four major regions of the U.S.—Northeast, Midwest, South and West. Building permit activity illustrates housing and overall economic activity in upcoming months and is a leading economic indicator. 

Housing activity is directly affected by mortgage rates. Higher interest rates, largely driven by the Federal Reserve, increase housing costs while reducing the number of qualified borrowers. That leads to a fall in home sales and housing starts. 

Conversely, lower interest rates increase housing affordability and spur homes sales and new home construction. Housing data can have a significant impact on the bond market. A stronger-than-expected housing start report indicates strong growth—and possible inflationary side-effects.

Multi-Family vs. Single-Family Housing Starts

If U.S. housing starts show a decline in new single-family units relative to multi-family housing starts, it could be an indication that a supply shortage is emerging for single-family housing. This may steer segment price increases, forcing single-family homes to go for a premium. 

A decline in housing starts also indicates that the general public might be avoiding expensive homes in favor of more affordable multi-family housing units. In addition, housing starts includes reports on apartment construction, which disclose inventory segment details and outlines whether prior build-up exceeded expectations.  

For example, let’s say provisional builders are initiating development on multi-level apartment buildings in urban areas. These builders foresee a rising rate of demand for apartment space in certain cities and are acting accordingly. However, in the event of a drop in demand for such housing, construction companies may withdraw their development plans. Housing demand impacts many things, including the decision to purchase new homes and homebuilding activity. 

How do Housing Starts Affect the Housing Market?

The housing market remains a fundamental part of the U.S. economy, which influences industries such as banking, construction, and real estate. Most homebuyers are likely to invest in a property while the economy is strong. However, in a weak economy, individuals are less likely to invest in homes. This, including the annual rate of change, is what’s outlined in housing starts data—hence why it is such a pivotal indication of economic strength.

A housing start is counted when construction begins on the foundation or footing of a residential structure. Data is divided into categories such as single-family homes, townhomes and condominiums, and multi-family structures with more than five units (apartment buildings). Multi-family units start when workers break ground on the building, and each unit is considered a single start. For example, a 25-unit building is labeled as such—25 unrelated housing starts. 

The type of new housing starts outlines the distinction of the developing economy. The comprehensive housing starts, meanwhile, conveys a generalization of economic direction. Recognizing which types of homes are being developed can offer a gauge of individual markets. 

Why Housing Starts Matter for Investors

Investors and analysts watch housing starts figures each month and compare that data to previous months and years. Because housing starts can be significantly affected by weather, the numbers are also seasonally adjusted and smoothed using statistical formulas. The housing starts data are often revised to reflect the most current evaluations. For example, the subprime mortgage meltdown hurt consumers, businesses and housing starts alike. Various industry companies were forced to close. Weakening credit markets meant real estate projects were deferred, or abandoned altogether. As such, housing starts fell dramatically during the recession, only elevating as the economic recovery started.   

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