What Are Housing Starts?
Housing starts are the number of new residential construction projects that have begun during any particular month. The New Residential Construction Report, commonly referred to as "housing starts," is considered to be a critical indicator of economic strength. Housing start statistics are released on or around the 17th of each month by the U.S. Commerce Department. The report includes building permits, housing starts and housing completions data. Surveys of homebuilders nationwide are used to compile the data.
Housing Starts Explained
Investors and analysts watch the housing starts figures each month, comparing them with previous months' data and year-over-year periods. Because housing starts can be significantly affected by weather, the numbers are also presented as seasonally adjusted and smoothed using statistical formulas. The housing starts data are often revised to reflect the most current evaluations. Housing is a key part of the U.S. economy, which has an effect on related industries, such as banking, the mortgage sector, raw materials, employment, construction, manufacturing, and real estate. In a strong economy, people are more likely to purchase new homes; conversely, in a weak economy, people are less likely to buy new homes.
What Housing Starts Can Reveal About the Economy
The types of new housing starts reported can reveal nuances of how the economy is developing. While the overall number of housing starts may convey a general sense of economic direction, understanding what types of houses are being built can give a more tailored assessment.
For example, if housing starts show a decline in new single-family units in favor of multifamily housing starts, it could indicate that a supply shortage is looming for single-family housing. That may lead to price increases for that segment, making those units more of a premium. It could also indicate that the general public is shying away from more expensive homes in favor of seeking more affordable multifamily units. Furthermore, housing starts indicators include reports on apartment construction, which can also reveal details on inventory for that segment, and whether or not prior buildup was more than what the market needed.
Speculative builders might have launched construction on multilevel apartment buildings in urban areas, for example, anticipating a certain amount of demand for apartment space in a given city. If there is a drop in demand for such housing, construction companies naturally might pull back on plans to further build up and develop in in cities.
Changes in demands for housing can stem from a variety of factors. Salary shifts and job changes can directly affect the feasibility of seeking a new home.