The New Residential Construction Report, more commonly 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, while 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, Midwest, South and West. This helps to reflect the vast differences in real estate markets in different areas of the country. On the national aggregates, the data will be segmented between single-family and multiple-unit housing, and all information is presented with and without seasonal adjustment.
Housing starts and building permits are both considered leading indicators
, and building permit figures are used to calculate 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 You
The housing market may show the first signs of stalling following a 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 traders looking to evaluate the real estate market, housing starts should be looked at in conjunction with existing home sales
, the rental element 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 smart traders will 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
-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 component of the economy