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When Housing Starts Dip, You Dip, I Dip

When Housing Starts Dip, You Dip, I Dip

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

A key report that reflects the strength of the housing market is the monthly Housing Starts report released jointly by the U.S. Census Bureau, U.S. Department of Commerce and U.S. Department of Housing & Urban Development.  The Housing Starts report includes two pieces of data: starts and permits.  A housing start is counted when construction begins on a new single or multifamily property.  A permit is counted when a permit is issued by a local government to a property owner or builder to begin construction on a new single or multifamily property. Because construction typically begins soon after a new permit is issued, housing starts and permits are typically highly correlated.

The Housing Starts report issued in February 2015 showed sluggish results for January 2015 after a relatively neutral report for December.  The January figures showed that housing starts declined 5.3% to approximately 1,065,000 annualized units while permits declined 0.7% to 1,053,000.  Both housing starts and permits failed to meet analyst expectations as the new home construction market got off to a slow start in 2015.  The relatively disappointing housing starts figure was driven down by the single family segment which declined 6.7% as compared to the prior month.  On a brighter note, multi-family housing starts increased 7.5% after increasing 5.6% in December.  The single family segment of the housing market is larger than the multifamily segment so the decline in that component of the housing market drags down the overall index.  Although single family housing starts were up in December 2014, that segment of the market has lagged the multi-family segment for the past several months. (Source: Bloomberg)

What it Means for Mortgage Borrowers

The overall housing market is off to a mixed start in 2015 and cannot really seem to gain significant momentum.  The February housing starts report reinforces two points about the real estate market.  First, home builders seem to be shifting their focus to multi-family properties.  Second, builders remain cautious about creating excessive supply in light of inconsistent demand from prospective buyers, especially first-time home buyers.  Although interest rates have edged up, they remain relatively low which is a positive for both home builders and buyers.  The housing starts report tends to fluctuate significantly on a monthly basis due to factors such as weather and we will monitor future reports to see if housing starts can break out of the current sluggish trend.  The housing starts figure is relevant for mortgage borrowers because it is a sign of future housing supply.  Although the February housing starts report was relatively disappointing, continued low interest rates means now is a good time to start the mortgage and home search processes.  Use our Mortgage Qualification Calculator to determine what size mortgage you can afford and our INTEREST RATES feature review interest rates and fees for lenders in your area.

The FREEandCLEAR Mortgage Expert

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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