Starts of new homes in February rebound 11.2 percent to 1.501 million units at a seasonally adjusted annual rate from the downward revision to 1.350 million units in January. The February level is well above the consensus of 1.383 million units in the Econoday survey of forecasters. Total home starts are 2.9 percent below 1.546 million units in February 2024. The month-over-month increase reflects catch up after bitterly cold and stormy weather prevented builders from getting current projects into production. However, the year-over-year decline suggests that there are fewer permitted projects in the pipeline for the coming months. The one-month surge in starts probably will lose steam in March.

Starts of new single-family homes are up 11.4 percent in February to 1.108 million units, but down 2.3 percent compared to 1.134 million units in February last year. Starts of multi-unit projects are up 10.7 percent to 393,000 in February from January but down 4.6 percent compared to 412,000 in February 2024.

Permits issued in February are down 1.2 percent to 1.456 million compared to January and down 6.8 percent compared to 1.563 million in February 2024. The number of permits issued has been trending lower for the past three months even as mortgage rates have moderated. Demand for new construction is facing both competition for more existing units on the market and a drop in consumer confidence where potential homebuyers are worried about an economic downturn and job security.

Permits issued are down 0.2 percent in February from January to 992,000 units and down 3.4 percent compared to February 2024. Multi-unit permits are down 3.1 percent to 464,000 in February from the prior month and decline 13.4 percent compared to a year ago.

The call for February is a 1.383 million unit rate, up slightly from 1.366 million in January. Permits are seen at 1.45 million units in February versus 1.483 million in January. High prices and high mortgage rates are holding back residential construction.

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.