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Housing Starts: CNBC Explains

Sam Hodgson | Bloomberg | Getty Images

The housing market is one of the pillars of the U.S. economy, and there may be no better indication of how the market is doing than a statistic called housing starts. This information is tracked by the government and issued to the public, usually through the business news media.

What are housing starts?

It's the construction of new buildings and structures intended for residential living across the country. In other words, it's the scheduled construction of a new house or apartment building. The start of the construction is defined as the beginning of excavation for the structure.

It's important to note that various regions of the U.S. have various types of housing start numbers. That's because some local economies may be doing better than others and weather patterns may vary; both issues can affect construction.

Why are housing starts important?

First, they reflect the commitment of builders to new construction. That means more people will be employed to build houses and apartment buildings. Second, it means consumers who buy the homes or move into an apartment will likely make big purchases for items like refrigerators, ovens, washers and dryers as well as sofas and other types of furniture. These are often referred to as durable goods.

If housing starts are up instead of down, that's a good sign for the economy and the stock market, as the ripple effect of purchases by consumers will increase corporate profits and increase the value of related stocks.

Who issues housing start numbers and how often?

They come from the Census Bureau, which is part of the Department of Commerce and from the Department of Housing and Urban Development.

They are issued once a month, usually the third week of the month. The statistics are from the previous month. That means a report issued in the third week of February is the report of January's housing starts.

Here's an example of the major part of a housing start report from December 2012: "U.S. Housing Starts is at a current level of 954,000, up from 851,00 last month and up from 697,00 one year ago. This is a change of 12.10 percent from last month and 36.87 percent from one year ago."

What's the best way to measure the impact of housing starts?

Because housing start numbers are so volatile, the advice is to look at a five- to six-month period of housing starts to get an accurate picture of the market. As mentioned above, weather can play a part on how much construction is being done, with colder temperatures especially slowing down construction. It's also recommended to do a year-over-year comparison to see trends emerge. That means comparing June's housing starts in 2012 to housing starts in June 2011.

Also complicating this is the fact that like many government reports, housing start figures are subject to revisions up or down, and those revisions, which come out within a two-month window from the original report, can change what the housing market actually looks like.

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