Housing Starts and Building Permits

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Housing starts and building permits are one of several types of indictors in which way the market is moving. There are plenty of things to take into consideration, but many feel that this allows for a good indication as to what the economy and the market is likely to do – so a leading indictor in the economic activity at the time. It is felt the housing starts and building permits are moderately important as well as moderately volatile. To gather this information, individuals can visit the Census Bureau of the Department Of Commerce, and the information is released once per month around the 16th.

When housing starts and building permits are used to compare the market, the following are considerations. When housing starts are seen as being up, the bond market is down, stock market is up and the dollar sees very little impact. When the housing starts are down, the bond market is likely up, the stock market is down and the dollar has little to no impact.


Definition: An estimate of the number of housing units on which construction was started. Starting construction is defined as excavation for the footings or foundation, or the first shovel of dirt to break ground. (In response to natural disasters such as Hurricane Andrew in August of 1992, that definition has been expanded to a housing unit built on an existing foundation after the previous structure had been completely destroyed.) Housing starts are divided into single-family and multifamily(2+) units. Beginning construction on a 100 unit apartment building, for example, is counted as 100 starts.

Source: U.S. Department of Commerce; Bureau of the Census

Frequency: Monthly

Availability: Around 15th of the month for the immediately preceding month Reason: Housing is perhaps the most interest-rate sensitive sector of the economy. It often experiences large swings in activity in response to changes in the level of long-term interest rates such as those on mortgages. While residential investment represents just four percent of the level of GDP, due to its volatility it frequently represents a much higher proportion of changes in GDP over relatively short periods of time. Policy makers monitor the housing sector very carefully for clues about the near-term performance of the economy and for the effects of changes in financial conditions.

Additions

Housing Starts are a measure of the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Building permits are permits taken out in order to allow excavation. An increase in building permits and starts usually occurs a few months after a reduction in mortgage rates. Permits lead starts, but permits are not required in all regions of the country, and the level of permits therefore tends to be less than the level of starts over time.

The monthly national report is broken down by region: Northeast, Midwest, South, and West. Briefing recommends analyzing the regional data because they are subject to a high degree of volatility. The high volatility can be attributed to weather changes and/or natural disasters. For example, an unexpectedly high level of rain in South could delay housing starts for the region.

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