Predicting
Economic Changes Through New Housing Starts
The Forex market, like other investment markets, is closely
tied to macroeconomic data that can positively or negatively
affect the market. In fact, investors are often glued to
the T.V. or to investment journals that detail the various
ups and downs of an economy. One of the economic indicators
that receive a lot of attention is the number of new housing
starts.
Why is the number of new housing starts so important?
The number of new housing starts is crucial since it helps
define where an economy or country is headed in the near
future. In other words, the number of housing starts is
a leading indicator of a nation's future economic health.
If the number of housing starts increases, then the economy
should be headed in the right direction. That’s because
new housing projects require a great deal of investment
and therefore, a bit of economic optimism.
It will in turn create a spiral effect, where consumers
will spend more money on home furnishings and mortgages
for their new homes. On the other hand, if the number of
housing starts decreases, then it might spell trouble in
the near future. In this scenario, investors might be hesitant
in investing in a questionable economy, and the future consumerism
related to new housing would not follow.
Details about the housing start report
The housing start report is published on a monthly basis
(comes out around the 17th of each month), with a one-month
lag time. The report consists of three main areas –
the number of housing starts, building permits and housing
completions. The number of housing starts is defined when
the foundation is poured, and the number of building permits
is counted when they have been approved.
Changes are shown as percentages from the prior month’s
data. The data itself is divided into four geographical
areas of the country, which gives a better feel for the
economic climate of each region. For example, the southern
region might show an increase in the number of housing starts,
while the west could show a decrease.
Furthermore, the national aggregate report divides the
data according to building types (single family homes, two
to four resident units, and five or more resident units).
The number of single-family housing starts is the most reliable
figure since it gauges true consumer confidence, whereas
multi-units are driven more by speculative investment.
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