Housing Starts Reports Reflect Construction Trends - dummies

Housing Starts Reports Reflect Construction Trends

Released every month, housing starts statistics are compiled by the U.S. Commerce Department and reported in three parts: building permits, housing starts, and housing completions.

The markets focus on the percentage of rise or fall in the numbers from the previous month for each component. A volatile series of numbers, this data can be greatly affected by weather, so it is also seasonally adjusted and includes a significant amount of revised data within each of the internal components.

For example, when winter arrives, snow storms and cold weather tend to halt or slow new and ongoing construction projects, so housing permits and housing starts can start to decline. If you don’t know that, you can make trading mistakes by betting that interest rates are going to fall. The problem comes when the weather clears, and the projects get underway, and the numbers swell. Markets look at the seasonally adjusted numbers, which are smoothed out by statistical formulas used by the U.S. Department of Commerce.

Even then, this set of numbers is tricky. The Commerce Department disclaimer notes that it can take up to four months of data to come up with a reliable set of indicators.

Bond and stock traders like housing starts, because housing is a central portion of the U.S. economy, given its dependence on credit and the fact that it uses raw materials and provides employment for a significant number of people in related industries, such as banking, the mortgage sector, construction, manufacturing, and real-estate brokerage.

Big moves often occur in the bond market after the numbers for housing starts are released.