Effective from the release of the January New Residential Construction Report on February 19, 2025, the US Census Bureau and the US Department of Housing and Urban Development will make adjustments to the Building Permit Survey methodology. In the current methodology, deduction factors are calculated by region, while the new methodology will rely on a combination of sections and large individual mandates. For more details on this change, please see the Derivation section of the Methodology page.
Residential Building Statistics for October 2024
On November 19, 2024, the US Census Bureau and the US Department of Housing and Urban Development announced the following residential construction statistics:
Housing construction start rate: The start rate of privately owned housing construction in October was 1,311,000 units per year, seasonally averaged. This represents a decrease of 3.1% (±11.6%) from the revised estimate for September of 1,353,000 units, and a decrease of 4.0% (±9.0%) from the October 2023 rate of 1,365,000 units. For individual family homes, the starting rate was 970,000 units, down 6.9% (±11.7%) from September’s revised figure of 1,042,000 units. Units in buildings with five or more units were 326,000 units.
Home Completion Rate: The completion rate of privately owned homes in October was 1,614,000 units, seasonally adjusted, representing a decrease of 4.4% (±12.7%) from the revised estimate for September of 1,688,000 units, but 16.8% (±13.0%) higher than the October 2023 rate of 1,382,000 units. For single family homes, the completion rate was 986,000 units, down 1.4% (±11.7%) from September’s adjusted rate of 1,000,000 units. Buildings with five or more units averaged 615,000 units.
When analyzing changes in statistics presented in this release, you should note that month-to-month changes in seasonally adjusted statistics may show irregular movements.
The Impact of US Home Construction Start Volatility on Markets and Investors
Volatility in housing construction start data can significantly affect the stock market and investor sentiment, and often serve as a key indicator of broader economic conditions. Here’s how data evolves:
1. Economic Health Signal
Housing construction start data reflects the number of new residential construction projects that started in a given period. When housing starts rise, it indicates confidence in the economy and the potential for sustainable growth. More construction usually means:
- Stronger economic growth, with housing construction being a key indicator of broader activity.
- Increased demand for materials, labor and services, benefiting industries such as construction, manufacturing, and housing improvement.
- The possibility of creating jobs in construction and related sectors.
Conversely, lower housing starts may indicate economic weakness or uncertainty, prompting investors to become more cautious and possibly adjust their forecasts for economic growth. This can lead to wider market volatility.
2. Interest rates and inflation expectations
- Housing construction starts are often associated with interest rates and inflation:
- Higher home construction starts may put pressure on demand for credit, especially mortgages. If prices rise, as often happens in response to inflation concerns, housing demand may slow, affecting future start-ups.
- Slowing home starts may indicate that consumers are facing higher borrowing costs, which may be due to higher interest rates or inflation. If the market perceives that the central bank will maintain higher rates to combat inflation, this could lead to a more risk-averse investment climate, affecting stock prices and market sentiment in general.
3. Impact on real estate and related sectors
- Real estate stocks and shares of housing construction companies are directly affected by the volatility of housing start-ups. A positive home start report often boosts investor sentiment in these sectors, as it indicates higher future demand for homes and building materials.
The impact of fluctuations in the start of housing construction on Fed policy
Changes in housing construction start data can provide the Fed with valuable information about the health of the economy and may influence its interest rate decisions, though they are only one factor among many that are considered. The start of housing construction is closely linked to economic growth, consumer sentiment, and inflation, all of which are key considerations for the Fed when determining monetary policy.
Here’s how fluctuations in housing construction starts can affect the Fed’s policy decisions:
Indicator of the health of the economy
High start of housing construction: When you increase the start of housing construction, this usually indicates the growth of the economy. He notes that consumers and businesses are confident and that there is strong demand for housing, which could reflect broader economic growth. If the economy is growing too fast, it can lead to inflationary pressures. In this scenario, the Fed may raise interest rates to calm inflation and prevent the economy from overheating.
Low start of housing construction: A low start of housing construction may indicate an economic slowdown or low consumer confidence, especially if it occurs in conjunction with other signs of weakness (such as lower consumer spending or business investment). If this happens, the Fed may cut interest rates to stimulate the economy by encouraging borrowing, spending, and investment.
Housing as a leading economic indicator
The start of housing construction is a leading indicator, which means that it often precedes broader economic trends. The housing market is very sensitive to interest rates, as price changes directly affect mortgage costs and housing affordability. If housing starts fall due to higher prices or a tightening credit environment, this could indicate that the economy may face a slowdown in the near future, which could prompt the Fed to ease policy (i.e., cut interest rates).
