Although the U.S. housing market has suffered extreme setbacks in the last few years, there is hope for a turnaround this year. The U.S. Census Bureau, working with the U.S. Department of Commerce and U.S. Department of Housing and Urban Development, released a recent report citing a 1.5 percent increase in housing starts in the month of January 2012. The economy and its housing market are seemingly moving in the right direction, albeit gradually, because more builders appear to be putting their labor crews to work, according to Barry Rutenberg, chairman of the National Association of Home Builders (NAHB).
The recent increase followed December’s 1.9% drop. The increase in housing starts is most correlated with the multifamily component. Areas that increased in housing starts included the South, the West and the Northeast. On the other hand, however, the Midwest portion of the country saw a significant drop.
Although this recent increase in housing starts is a positive indication of a healthy economy, analysts concur that housing starts are especially volatile during the winter and monitoring a five-month moving average is a more reliable indicator of the health of the economy.
This data in this report is released nearly three weeks after the end of the previous month. Nonetheless, this statistic is very descriptive of the economy. Home buyers will not invest in the long process of home construction if they are not confident that they will be able to pay for the home. This provides an indication of consumer confidence in terms of their financial stability and the current state of the economy. Home builders that have not yet secured a specific buyer will not initiate the project if they feel that the home will not sell. If home builders are building more homes, this indicates that there is a larger demand for homes. If more homes are built, more construction employees are hired and more money is expended for housing materials, home furnishings, appliances and related expenses.
When housing starts increase, stocks for construction companies, mortgage lenders and appliance companies often rise in a direct correlation to the increasing number of homes that are being built. As is typical, when stocks increase, bonds decrease. When housing starts increase, bonds tend to decrease in value. Interest rates are also lowered so that investors will continue to invest in mortgages and construction projects.