What exactly are housing starts? This term, so often thrown around by housing policy wonks and quoted in dense financial reports, refers to the number of new homes on which builders have started construction in any particular month. The latest figures can be found in the U.S. Census Bureau’s monthly New Residential Construction Report (along with the number of building permits granted and residences completed), and are widely regarded as a key indicator of our nation’s economic health.
But if you’re not a financial adviser or high-end investor, why should you care, exactly? Because they directly affect regular home buyers. Here are some things you need to know about housing starts, including how they’re doing, what the data mean, and how this might affect your own efforts to buy a home.
What do housing starts really tell us, anyhow?
Housing starts reflect the strength of the U.S. economy since, simply put, new construction signals more jobs, higher salaries, and an abundance of loans to fund businesses and other endeavors.
For context: In 2005, when the economy was thriving, housing starts peaked at 2.068 million units. In 2009, during the depths of the Great Recession, housing starts bottomed out at 554,000 units. From there, housing starts had been on an upward trajectory—until the COVID-19 pandemic hit. In April 2020, housing starts hit a five-year low of 938,000 units. Now, we’re seeing the number of housing starts hover at 1.42 million units.
Although housing starts data are released around the 17th of every month, experts warn against reading too much into month-to-month fluctuations, because housing starts are closely tied to … the weather. After all, building houses are far easier when Mother Nature cooperates.
As a result, housing starts follow a seasonal pattern, tending to rise in the spring, peak in the summer, ebb in the fall, and drop to their lowest levels during the winter. This is why analyses typically compare any particular month’s housing starts to the same month a year earlier, rather than to the month before.
What do housing starts mean for homebuyers?
A rise in housing starts is good news for homebuyers, particularly for the one-third who say they want to buy a brand-new home. For those folks, they’ll have more options to pick from, and odds are they’ll be at lower prices, too.
According to Andres Carbacho-Burgos, a global economist and former senior economist at Moody’s Analytics, “Housing starts, when they are completed, add supply [and in turn] reduce upward pressure on new-home prices and may even reduce them.”
People looking to buy existing (or previously lived-in) homes benefit from healthy housing starts, too, points out Danielle Hale, chief economist at Realtor.com. The reason: A high number of houses, both new and old, drives down prices for all residences, not just the shiny new ones.
How to start your homebuying search
Keep in mind that “housing starts describe the state of the home construction market in broad strokes,” says Hale. In other words, not all areas and markets will feel the same effects.
“Housing starts could be concentrated mainly on high-end homes, which would mean that only the upper tier of the housing market would be affected,” Carbacho-Burgos explains.
“At the end of the day, all real estate is local,” says Dietz. So be sure to research your particular area using online tools like realtor.com/local, where you can find out the average home sales price and other info that will help guide your search.
