Starts of new homes are down 0.8 percent to 1.420 million units in March from a downwardly revised 1.432 million in February. The level is slightly above the consensus of 1.400 million units in an Econoday survey. The decline reflects a 2.7 percent rise in single-family home starts to 861,000 in March from 838,000 in February that is more than offset by a 5.9 percent decline in multi-unit starts to 559,000 after 594,000 in the prior month. The pace of starts in March and February is above that seen in January and December and is due to the decline in mortgage rates in recent months.

The increase in starts of single-family homes is notable in that it has been the multi-unit sector that has been the larger share of new residential construction since mortgage rates approached 7 percent in September 2022. However, with supplies of existing homes for sale quite limited and likely to remain so, new construction may be a homebuyer's only realistic option.

The number of permits issued in March declines 8.8 percent to 1.413 million, retreating after an increase to 1.550 million in February. The level is below the consensus of 1.441 million in an Econoday survey. Permits for single-family homes are up 4.1 percent to 818,000 in March from 786,000 in February, while permits for multi-units are down 22.1 percent to 595,000 in March from 764,000 in the prior month.

With supplies of existing homes tight, the spring buying season may be seeing improvement for the single-family sector as builders see more demand for this type of home. Demand for multi-unit properties may have been exhausted in part because those renters who opted to become homeowners in recent months have made their move while price concessions and lower interest rates were available.

Housing starts in February jumped sharply to a 1.450 million annualized rate from January's 1.321 million. March is expected to see a fall back to 1.400 million. Permits, at 1.524 million in February, also jumped sharply and are seen falling back to 1.441 million in March.

Housing starts measure the initial construction of single-family and multi-family units on a monthly basis. Data on permits provide indications of future construction. A housing start is registered at the start of construction of a new building intended primarily as a residential building. The start of construction is defined as the beginning of excavation of the foundation for the building.

Two words: Ripple Effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as housing starts, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic"ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.

Importance
The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow.

Interpretation
The bond market will rally when housing starts decrease, but bond prices will fall when housing starts post healthy gains. A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In turn, low interest rates encourage housing construction.

The level as well as changes in housing starts reveals residential construction trends. Housing starts are subject to substantial monthly volatility, especially during winter months. It takes several months to establish a trend. Thus, it is useful to look at a 5-month moving average (centered) of housing starts.

It is useful to examine the trends in construction activity for single homes and multi-family units separately because they can deviate significantly. Single-family home-building is larger and less volatile than multi-family construction. It is more sensitive to interest rate changes and less speculative in nature. The construction of multi-family units can be substantially influenced by changes in the tax code and speculative real estate investors.

Housing construction varies by region as well. The regions of the United States do not all follow exactly the same economic patterns because industry concentration varies in the four major regions of the country. The regional dispersion can mask underlying trends. The total level of housing construction as well as the regional distribution of housing construction is important.

Housing permits are released together with housing starts every month and are considered a leading indicator of starts. In reality, housing permits and starts typically move in tandem each month. However, there are some exceptions. For instance, if permits are issued late in the month, and weather does not permit immediate excavation, then permits might lead starts. For the most part, though, permits are not a good predictor of future housing starts. Incidentally, housing permits (but not starts) are one of the ten components of the index of leading indicators compiled by The Conference Board.