Housing Starts

A housing start is a statistical measurement for residential construction and one of the most closely tracked housing indicators in the economy. It aggregates the total number of new houses that initiate the building processes in a given time period on the national, state, and metropolitan levels. Breaking ground and starting a foundation or footing are indicators that show the beginning of constructing a new home.

Many cities and townships require either home builders or homeowners to acquire a building permit before building a new house. However, building permit information can be an inaccurate reflection of the activities of home construction. There are two reasons. First, not all areas in the United States require a building permit to build a new home. Second, it is not surprising that, for various reasons, home builders and owners change their plans and fail to break ground on time—or ever; thus, not all permits eventually turn into a new house.

Housing starts can help track the progress of home building. The indicator is closely watched by industry analysts, policymakers, investors, and academic researchers. It is one of the few housing indicators that is able to signal future housing market condition and even the health of the economy. The changing dynamics of housing starts contain the hidden information on future market conditions crucial for current and prospective homeowners.

Single-family housing starts (i.e., housing starts for homes with one housing unit) account for the majority of housing starts. They are usually more than 70% and sometimes higher than 90% of the total housing starts. Single-housing starts are sensitive to several economic and policy variables, including price level, economic output, and government policy. An increase of price level will increase the cost of construction. Holding everything else constant, the increased cost will force home builders and prospective buyers to think again before starting a new home. A booming economy is a double-edged sword. On one hand, it boosts the confidence of home builders and buyers who have higher income. Then housing starts will increase. On the other hand, without accurate information and forecasting, the inventory of new houses may overwhelm the market and cause a decline of housing starts later.

At its historical peak, it was around 230,000 units started per month. Before the recent (2008– 2009) market collapse, housing starts were close to a historic peak and reached almost 200,000 in 2005. People were buying second homes and investment properties. During the period between the early 1990s and 2005, housing starts had their best run in history. Growth continued for around 15 years. Then, housing starts underwent their deepest drop in history, all the way to around 31,000 in 2009.