Starts rebounded in February after a cold January, and the decline in March is a correction back to the underlying trend. Homebuyers remain sensitive to even small moves in mortgage rates which leaves homebuilders cautious about creating excess inventory during an overall slow period for housing. Lean inventories of existing units are keeping home building stronger than it might be otherwise while the rate for a 30-year fixed rate mortgage hovers around 7 percent. Overall starts are down 4.3 percent compared to March 2023.

Starts of single-family homes fell 12.4 percent in March to 1.022 million units but are up 21.2 percent compared to a year ago. Although inventories of existing homes are rising a bit, affordable single-family homes are relatively scarce and home builders are moving in to fill the gap.

The volatile multi-family home segment fell 21.7 percent to 299,000 in March for the lowest rate since April 2020. The multi-unit sector had benefited from an exodus of renters in 2022 and 2023 when rent increases made purchasing a home more affordable and helped lock in monthly housing costs. However, rising prices and higher mortgage rates have reduced demand for multi-unit homes.

The number of building permits issued fell 4.3 percent in March to 1.458 million after rising 2.3 percent to 1.523 million in February. The level in March is below the 1.510 million unit consensus in the Econoday survey. The pace of permits issued may be generally a bit slower but is not appreciably less than much of the past year. The total is up 1.5 percent compared to March 2023.

Permits for single-family homes fell 5.7 percent to 973,000 in March after 1.032 million in February. The level is up 1.5 percent compared to a year ago. Permits for multi-unit projects slipped 1.2 percent to 485,000 in March from 491,000 in February and down 20.2 percent from a year ago.

Housing starts in March are expected to fall back to a 1.480 million annual rate versus February's 1.521 million rate that was much higher than expected but followed a much lower-than-expected 1.374 million in January. Permits, at 1.518 million in February, are expected to hold steady at 1.541 million.

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.