Housing Starts Dictate the Economy…

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Tuesday’s Tip

Housing Starts

You’ve probably heard this headline-grabbing term many times, but do you ever wonder what it really means?  It is an economic indicator that economists and research analysts use to help get a pulse on economic trends.  Economic indicators can impact investment decisions, including selling and buying a home.  Its worthwhile to take a close look at exactly what this indicator predicts.

If you’re a homeowner, you’ve probably seen the value of your house rise dramatically over the past few years, thanks to record low interest rates and a tight housing market.  The recent high demand for real estate resulted in a jump in housing starts.

Housing starts report the number of new residential construction projects – both single-family homes and multifamily buildings – on which building has begun. Related indicators are new homes sales, housing completions and the number of building permits issued.

The U.S. Department of Commerce’s U.S. Census Bureau releases the data two to three weeks after the end of the reference month.   Both building permits and housing starts have been fairly accurate leading indicators of economic recessions and recoveries, since a rise or fall in interest rates often affects them before affecting the overall economy.  However, weather can seriously affect housing figures, so the monthly data are very volatile and subject to subsequent revisions.  Instead of focusing on the monthly figures, analysts watch for longer-term trends in housing.  Some economists, however, prefer to look at housing sales because they can be timelier.  “Starts won’t occur unless there are sales.  In addition, sales affect the demand for housing-related goods, so they can give you a sense of furniture and appliances may be going, “ says Darrell Spence an economist from Capital Group.

To view housing starts for the month of September click below:

Residential Construction Statistics

Source: Investor Magazine, Fall/Winter 2004