Housing Starts 1.3 million in October, Highest Level in 12 Years

Analysis:

  • Private housing starts numbered 1.31 million in October, the highest level in 12 years.
  • This is a 3.8 percent increase above housing starts in September, and an 8.5 percent increase since October 2018.
  • Applications for building permits for privately-owned housing units rose to 1.46 million in October, a 5.0 percent increase from September and a 14.1 percent increase from October 2019. These applications represent a positive indicator for future housing construction. 
  • Housing starts a signal of broader economic strength, as housing comprises a large portion of investment spending.
  • These numbers are reported at a seasonally adjusted annual rate.

Economist Corner:

Housing represents an important sector of the economy for a number of reasons. First, new home construction represents a non-trivial share of investment. Second, new homes generate additional economic activity. An individual who purchases a new house, for instance, tends to also buy new appliances and furniture for the new home. Third, for many households, housing represents their primary form of wealth. If housing prices go up, household wealth tends to increase along with it, supporting consumer spending.

Trends within housing therefore tend to be harbingers of the overall direction of the economy. There are two often-cited measures of the housing sector: new housing starts (the number of houses on which construction began), and applications for permits to begin new construction. Both contain information about the current and future strength of this crucial market.

There is goods news: both of these measures increased between September and October of this year. New housing starts increased 3.8 percent, and applications for permits increased 5.0 percent. The temperature in the housing market seems consistent with the rest of the economy: it’s hot.