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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