What Are Housing Starts? Explore This Vital Economic Indicator
The term housing starts refers to the start of construction on a new residential housing unit. Housing starts are considered a crucial economic indicator, reflecting the health of the housing sector and its broader economic implications. This data provides insights into consumer spending on big-ticket items such as appliances and furniture.
The U.S. Census Bureau publishes estimates of U.S. housing starts on the 12th business day of each month. These estimates are based on a survey of homebuilders, partially funded by the U.S. Department of Housing and Urban Development. The New Residential Construction report also includes housing completion data and a count of building permits drawn from a separate survey of building permit offices.
Key Takeaways
- Housing starts measure new residential construction and serve as a key economic indicator.
- A housing start is recorded once construction begins, with each unit in a multi-family project counted separately.
- Seasonally adjusted data is compared monthly to observe trends and reduce volatility.
- Long-term trends in housing starts provide critical insights into consumer spending and the broader economy.
Understanding Housing Starts
Housing is a pivotal sector of the U.S. economy, influencing banking, construction, and real estate industries. The health of this sector also impacts employment and the prices of commodities like lumber and copper.
Housing starts indicate builders’ willingness to launch new projects based on demand forecasts. Therefore, the trend in housing starts can reveal insights into market risk appetite and consumer sentiment.
Given that housing starts in the U.S. fluctuate seasonally, the headline number in the monthly report is shown at a seasonally adjusted annual rate. This adjusts the monthly total according to seasonal patterns to estimate the annual starts rate at the prevailing pace.
Short-term weather disruptions, such as storms or cold spells, can affect housing start figures. The Census Bureau notes that month-to-month changes can be irregular and suggests that it takes six months to ascertain the underlying rate of housing starts.
The report provides regional housing starts data for the Northeast, Midwest, South, and West U.S.
What Counts as a Housing Start
A housing start signifies groundbreaking or excavation for a home’s foundation or footing. The monthly data is categorized into three housing types:
- Single-family homes
- Multi-family homes with two to four units
- Multi-family homes with five or more units, including apartment buildings
For single-family homes and multi-family units with five or more units, the data is seasonally adjusted and provided on an unadjusted basis. However, for multi-family units with two to four units, only unadjusted data is provided.
Each unit in multi-family housing counts as a separate start. Thus, starting construction on a 25-unit apartment building would account for 25 new multi-family housing starts.
The New Residential Construction report tracks privately-owned housing starts, including units constructed by private developers for eventual sale to local public housing authorities. Housing unit statistics exclude communal living arrangements such as dormitories and rooming houses.
How the Housing Starts Data Is Gathered
The Census Bureau estimates housing starts based on a representative sample of building permits issued by local permitting offices and tracks these projects through to completion and sale.
Housing starts involving five or more units are counted, but only a 2% sample of nationwide starts for housing with one to four units is surveyed.
To account for sampling errors, the monthly report provides error margins representing 90% confidence intervals for monthly and annual changes. For example, a reported 1.7% decline in single-family housing starts in a given month with a confidence interval of ±12.3%, and an annual decline of 4.4% with an ±8.3% margin.
The Bottom Line
Housing is a monumental facet of the U.S. economy, and the monthly housing starts report is a crucial measure of its health. While monthly figures can be volatile and carry significant error margins, a long-term dataset is essential to identify underlying trends.
Mortgage lending discrimination is illegal. If you believe you have been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, you can file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Related Terms: economic indicator, building permits, consumer sentiment, seasonal adjustment, construction sector.
References
- U.S. Census Bureau. “New Residential Construction Release Schedule”.
- U.S. Census Bureau. “Monthly New Residential Construction”, Page 2.
- U.S. Census Bureau. “Definitions - Survey of Construction”.
- U.S. Census Bureau. “How the Data Are Collected (Survey of Construction)”.
- National Association of Home Builders. “Starts and Permits”.
- U.S. Census Bureau. “Monthly New Residential Construction, March 2022”, Page 5.
