Economic Indicators: Housing Starts
By Ryan Barnes
|Release Date:||On or around the 17th of the month|
|Release Time:||8:30am Eastern Standard Time|
|Coverage:||Previous month\'s data|
|Released By:||U.S. Census Bureau|
The New Residential Construction Report, known as "housing starts" on Wall Street, is a monthly report issued by the U.S. Census Bureau jointly with the U.S. Department of Housing and Urban Development (HUD). The data is derived from surveys of homebuilders nationwide, and three metrics are provided: housing starts, building permits and housing completions. A housing start is defined as beginning the foundation of the home itself. Building permits are counted as of when they are granted.
Both building permits and housing starts will be shown as a percentage change from the prior month and year-over-year period. In addition, both data sets are divided geographically into four regions: Northeast,
Housing starts and building permits are both considered leading indicators, and building permit figures are used to compute the Conference Board's U.S. Leading Index. Construction growth usually picks up at the beginning of the business cycle (the Leading Indicator Index is used to identify business cycle patterns in the economy, and is used by the Federal Open Market Committee (FOMC) during policy meetings).
What it Means for Investors
This is not typically a report that shocks the markets, but some analysts will use the housing starts report to help create estimates for other consumer-based indicators; people buying new homes tend to spend money on other consumer goods such as furniture, lawn and garden supplies, and home appliances.
The housing market may show the first signs of stalling after a recent rate hike by the Federal Reserve. This is because rising mortgage rates may be enough to convince homebuilders to slow down on new home starts. For investors looking to evaluate the real estate market, housing starts should be looked at in conjunction with existing home sales, the rental component of the Consumer Price Index and the Housing Price Index (also available from the Census Bureau). (For related reading, see Investing In Real Estate.)
According to the Census Bureau, "it may take four months to establish an underlying trend for building permit authorizations, five months for total starts and six months for total completions", so investors should look more closely at the forming patterns to see through often-volatile month to month results.
- Very forward-looking, especially building permits; a good gauge for future real estate supply levels
- Can be used to identify business cycle pivot points
- Sample size covers approximately 95% of all residential construction in the U.S.
- No differentiation between size and quality of homes being initiated, only the nominal amount
- Only focuses on one area of the economy
Housing starts is best used as a business cycle indicator and a tool for investors researching the real estate markets.
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