Housing Starts, Permits, and Builder Confidence
Why Housing Data Matters for Macro
Residential investment represents only about 4-5% of GDP, but housing is one of the most interest-rate-sensitive sectors. When the Federal Reserve raises rates, housing typically slows first. When rates fall, housing often leads the recovery.
The practical point: Housing indicators are leading indicators for the broader economy—not because housing is large, but because it responds quickly to credit conditions.
Housing Starts: Measuring New Construction
Housing starts count the number of residential units where construction has begun. The Census Bureau reports starts monthly at an annualized rate.
| Category | What It Measures |
|---|---|
| Single-family starts | Detached houses |
| Multifamily starts | Apartments and condos (5+ units) |
| Total starts | Combined figure |
Typical levels:
- Pre-2008 peak: 2.3 million annualized (unsustainable)
- 2008-2009 trough: 478,000 annualized
- Normalized range: 1.3-1.6 million annualized
- 2024 levels: approximately 1.3-1.4 million annualized
Worked example (October 2024):
- Total starts: 1.31 million annualized
- Single-family: 970,000
- Multifamily: 340,000
Single-family strength relative to multifamily reflected cooling apartment construction after years of elevated building.
Building Permits: The Leading Indicator
Building permits precede housing starts by 1-2 months on average. A permit must be obtained before construction begins, making permits a forward-looking signal.
The relationship: Permits Today → Starts in 1-2 Months → Completions in 6-12 Months
Why permits matter:
- Less volatile than starts (starts affected by weather)
- Better leading indicator for construction employment
- Single-family permits particularly useful for new home sales outlook
Worked example: If permits drop 10% in October while starts hold steady, expect starts to decline in November-December as the permit pipeline shrinks.
NAHB Builder Confidence Index
The National Association of Home Builders publishes a monthly survey of builder sentiment:
| Component | What It Measures |
|---|---|
| Current sales | Present conditions |
| Expected sales (next 6 months) | Forward expectations |
| Traffic of prospective buyers | Demand signal |
Index interpretation:
- Above 50: More builders view conditions as good than poor
- Below 50: More builders view conditions as poor than good
- Historical average: approximately 50-55
Why it matters: Builder confidence often leads permits and starts by 1-3 months. When builders turn pessimistic, they slow permit applications.
Historical example (2022): Builder confidence dropped from 84 in December 2021 to 31 in December 2022 as mortgage rates spiked. Starts followed with a lag, declining approximately 25% peak-to-trough.
Single-Family vs. Multifamily Dynamics
The two categories respond to different drivers:
| Factor | Single-Family | Multifamily |
|---|---|---|
| Primary driver | Mortgage rates, home prices | Apartment rents, cap rates |
| Buyer profile | Owner-occupants | Institutional investors |
| Rate sensitivity | Very high | High |
| Construction time | 4-7 months | 12-24 months |
The point is: Multifamily has longer lags and is more driven by institutional capital flows. Single-family responds more quickly to mortgage rate changes.
Regional Variation
Housing data varies dramatically by region:
- Sun Belt (Texas, Florida, Arizona): Stronger growth, more volatile
- Northeast: Less volatile, higher land costs constrain supply
- Midwest: Moderate, affordable markets
- West Coast: Supply-constrained, expensive
The practical insight: National figures can mask significant regional divergences. For investment purposes, check state-level data.
Completions and the Supply Pipeline
Housing completions measure units finished and ready for occupancy. They lag starts by several months.
Why completions matter:
- Affect housing inventory levels
- Multifamily completions affect rent inflation
- Mismatch between completions and demand drives prices
2024 context: Elevated multifamily completions (units started in 2022) arriving as demand cools created apartment supply increases, potentially moderating rent inflation.
Common Pitfalls
- Overreacting to weather-affected months: January-February starts are particularly volatile
- Ignoring permit-to-start lags: Permits signal direction before starts move
- Treating national data as local reality: Housing is local
- Missing multifamily completion cycle: Long lags mean today's completions reflect decisions from 18+ months ago
Housing and the Business Cycle
Historical pattern:
| Cycle Phase | Housing Behavior |
|---|---|
| Late expansion | Housing often peaks before recession begins |
| Early recession | Housing among first sectors to contract |
| Late recession | Housing often troughs before overall economy |
| Early recovery | Housing among first sectors to recover |
The durable lesson: Watch housing as a leading indicator. When housing data turns before the broader economy, pay attention.
Checklist for Housing Data Days
Before the release:
- Know consensus for starts and permits
- Note recent mortgage rate movements
- Check builder confidence (released earlier in the month)
After the release:
- Compare starts to permits—divergence signals trend change
- Check single-family vs. multifamily breakdown
- Note revisions to prior two months
- Check regional data for Sun Belt vs. Northeast patterns
Next Step
Track the NAHB builder confidence index alongside mortgage rates for the next six months. Note the correlation: falling rates typically boost confidence with a 1-2 month lag. When confidence diverges from rate direction, investigate what other factors (inventory levels, buyer income growth) might be at play.