What Are Housing Starts?
Housing starts represent the number of new residential construction projects on which ground has been broken during a given month. As a key economic indicator within the broader real estate and construction sectors, housing starts data provides insight into the health of the housing market and the economy as a whole. This metric typically includes privately-owned housing units, encompassing single-family homes and multi-family buildings such as apartments or condominiums. The initiation of new construction signifies builder confidence and future housing supply. Housing starts are closely watched by economists, investors, and policymakers as they can signal shifts in consumer demand, interest rates, and overall economic activity.
History and Origin
The collection and reporting of housing starts data in the United States began in the mid-20th century. The U.S. Census Bureau, in conjunction with the Department of Housing and Urban Development (HUD), is responsible for surveying and compiling this vital information. This statistical effort provides a continuous record of construction activity, allowing for historical comparisons and trend analysis. The data on new privately-owned housing units started has been collected consistently over decades, forming a cornerstone of residential investment analysis and providing critical input for assessing economic conditions. The U.S. Census Bureau publishes national and regional data, excluding manufactured homes.8
Key Takeaways
- Housing starts measure the initiation of construction on new privately-owned residential units.
- They serve as a forward-looking economic indicator for the real estate and construction industries.
- The data reflects builder confidence, consumer demand, and future housing supply.
- Housing starts are a component of Gross Domestic Product and are influenced by monetary policy and mortgage rates.
Interpreting Housing Starts
Interpreting housing starts involves analyzing both the absolute numbers and month-over-month or year-over-year changes, often presented as a seasonally adjusted annual rate. A rise in housing starts generally indicates increasing confidence among builders and suggests strong underlying demand for housing, which can be a positive sign for economic growth. Conversely, a decline may signal a slowdown in the real estate market or broader economic contraction. For instance, single-family housing starts dropped sharply in December 2024, despite new construction being supported by a shortage of existing homes for sale.7 Analysts also scrutinize the breakdown between single-family and multi-family starts, as these can reflect different market dynamics and demographic shifts. The data is frequently compared to historical averages to identify long-term trends or potential deviations, such as during periods of rapid growth or recession.
Hypothetical Example
Imagine a local news report stating that national housing starts for the previous month surged by 10% to an annualized rate of 1.5 million units. This increase suggests that more homebuilders are initiating new projects, perhaps in anticipation of rising demand or favorable interest rates. The report might also highlight that single-family housing starts accounted for the majority of this increase, indicating robust demand from individual homebuyers. This positive trend in housing starts could lead to increased employment in construction and related industries, such as building materials manufacturing, thus contributing to overall economic expansion.
Practical Applications
Housing starts data is widely used across various financial and economic analyses. In investment, it can inform decisions related to homebuilder stocks, construction material companies, and mortgage lenders. For example, sustained increases in housing starts often correlate with stronger earnings for companies in these sectors. Economists and policymakers utilize housing starts as a gauge of economic health and inflationary pressures. A robust housing sector can contribute significantly to a nation's Gross Domestic Product, as new home construction is a major component of residential investment.6,5 The Congressional Budget Office analyzes housing starts to project future economic activity and inform budgetary forecasts.4 The data also helps central banks assess the impact of their monetary policy decisions, such as changes in interest rates, on the housing market and the broader economy. For instance, the Federal Reserve's rate hikes in 2022 and 2023 caused mortgage rates to rise, contributing to a decline in residential investment.3 Data on housing starts from FRED (Federal Reserve Bank of St. Louis) provides historical context for these trends.2
Limitations and Criticisms
While housing starts provide valuable insight, they have limitations as a standalone economic indicator. The data represents the initiation of construction, not necessarily the completion or sale of homes, meaning it doesn't always directly reflect the current level of housing inventory available to buyers. Factors like labor shortages, supply chain disruptions for materials, or adverse weather conditions can impact the actual progress of construction, leading to discrepancies between starts and completions. Furthermore, regional variations in the real estate market can be significant, meaning national housing starts figures might not accurately represent local market conditions. For example, during the 2007-2011 housing bust, house prices declined significantly more in some areas than others.1 Additionally, while closely tied to broader economic cycles, housing starts can sometimes be volatile, showing month-to-month fluctuations that require careful interpretation rather than immediate conclusions.
Housing Starts vs. Building Permits
Housing starts and building permits are closely related but distinct economic indicators within the construction sector. The key difference lies in the stage of the construction process they measure.
Housing Starts refer to the actual commencement of construction on a new residential building. This is typically when excavation for the foundation begins. It indicates that builders have committed to a project and are actively moving forward with construction.
Building Permits, on the other hand, represent the authorization granted by a local government or municipality for construction to begin. A permit must be obtained before construction can legally start. Therefore, building permits are generally considered a more forward-looking indicator than housing starts, as they reflect future construction activity that has been approved but may not have broken ground yet. A high number of issued permits suggests strong future housing starts, while a decline in permits might signal a forthcoming slowdown in new construction. Both metrics are crucial for understanding the potential supply and demand dynamics in the housing market.
FAQs
How are housing starts measured?
Housing starts are measured by the U.S. Census Bureau through a nationwide survey of builders. A "start" is counted when excavation for the footings or foundation of a new residential building begins. For multi-family buildings, all units within the structure are considered started once excavation commences.
Why are housing starts important for the economy?
Housing starts are important because they are a leading indicator of economic health. Increased housing starts suggest growth in the construction sector, which creates jobs and drives demand for building materials and related services. This activity contributes to the Gross Domestic Product and reflects overall consumer and business confidence.
Do housing starts include all types of housing?
Housing starts primarily include new, privately-owned residential housing units. This covers single-family homes, townhouses, and multi-family structures like apartment buildings or condominiums. It generally excludes "HUD-code" manufactured (mobile) homes and public housing projects.
What factors influence housing starts?
Several factors influence housing starts, including interest rates (especially mortgage rates), population growth, consumer confidence, availability of land and labor, material costs, and overall economic conditions. Government policies and incentives can also play a role.
How do housing starts affect inflation?
A sustained increase in housing starts can indicate strong demand in the housing sector, which, if not met by sufficient supply, can contribute to rising home prices and rents, thereby fueling inflation within the broader economy. Conversely, a significant drop in housing starts might ease inflationary pressures in the housing market.