Housing Starts

Source: Department of Commerce

Frequency: Monthly

Availability: Two to three weeks following the reported month

Possible Impact on Interest Rates: Larger-than-expected monthly increase or increasing trend is considered inflationary, causing bond prices to drop and yields and interest rates to rise.

Current Data Reported April 19, 2000: Housing starts fell 11.2% to a 1.604 million pace in March--the largest drop in over six years. The decline was led by a 41% plunge in multi-family starts, which more than erased a 30.5% gain the prior month. Single family starts were up slightly by 0.2% for the month, following two straight months of negative readings. Regionally, the largest declines were seen in the Northeast and Midwest, followed by the West. The Southern region was flat in March. It looks like April will continue to show weakness as permits dropped by 4.5% last month to a 1.58 million pace. This follows a 6.7% decline in February. Permits are used to predict future activity. See "Overview" below for further discussion.

Overview: The housing industry accounts for about 27% of investment spending and 5% of the overall economy. Housing starts is important because it is a leading indicator. Sustained declines in housing starts slow the economy and can push it into a recession. Likewise, increases in housing activity triggers economic growth.

Housing data tracks the four major regions of the U. S.: Northeast, Midwest, South, and West.

Building permit data is released at the same time as housing starts. Permit activity provides insight into housing and overall economic activity in upcoming months. It is so important that it is included in the index of leading economic indicators.

Housing activity is directly impacted by mortgage rates. Higher interest rates increase housing costs and reduce the number of qualified borrowers, thus, a decline in home sales and drop-off in starts. Conversely, lower interest rates increases housing affordability and spurs homes sales and housing starts.

Housing data can have a significant impact on the bond market. A stronger-than-expected report is viewed negatively, suggesting strong growth and possible inflationary side-effects. A weak report has the opposite effect on the market.