Housing Starts
What is Housing Starts?
Housing starts count the residential building projects on which construction began during a month, reported monthly by the Census Bureau.
Housing starts count privately owned residential units where excavation for the foundation began during the month, split between single-family homes and multifamily buildings, and the Census Bureau publishes them together with permits and completions. Residential construction is one of the most interest-sensitive parts of the economy, so starts react quickly when mortgage rates or credit conditions shift, which is why they are read as a leading indicator. Each start also pulls in later spending on lumber, appliances, furniture and labor, giving the series more weight in the cycle than its small share of GDP would suggest. Permits lead starts, since a builder must obtain authorization before breaking ground, and permits rather than starts are the component used in the standard leading index. Monthly figures are volatile, especially the multifamily piece, so a three-month average is the usual way to read them.
Housing Starts: a worked example
Suppose starts run at an annual rate of 1.40 million units one month and 1.26 million the next, a decline of 0.14 million or 10 percent (0.14 ÷ 1.40 = 0.10). Before calling that a housing downturn, split the total. If single-family starts fell from 1.00 million to 0.98 million (down 2 percent) while multifamily fell from 0.40 million to 0.28 million (down 30 percent), nearly all the weakness sits in apartment projects, which are lumpy because one large building shifts the count. Single-family starts track household demand more closely, so the underlying signal here is mild.
The mistake students make with housing starts
Students treat a large monthly swing in housing starts as a verdict on the whole economy. The multifamily component is lumpy enough that a few big apartment projects can move the headline by double digits, so the single-family series and a three-month average carry the real signal. A related mix-up is permits versus starts. A permit is authorization to build and comes first, which is why permits, not starts, appear in the leading index.
Housing Starts questions
Why are housing starts a leading indicator?
Housing starts lead because residential construction responds faster than anything else to interest rates and credit availability, so builders adjust before the rest of the economy does. Each start also sets off later spending on materials, appliances and furnishings. Permits, which come earlier still, are what the official leading index actually tracks.
What is the difference between housing starts and building permits?
A building permit is local government authorization to build, while a start means excavation for the foundation has actually begun. Permits therefore come first and lead starts by a short interval. Not every permit becomes a start, which is one reason both series are published.
Are housing starts reported at an annual rate?
Yes, housing starts are published as a seasonally adjusted annual rate, meaning the month's pace projected across twelve months. That is why the figures run in the millions when far fewer units actually broke ground that month. Comparing an annual rate with a raw monthly count is a frequent error.
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