Strong housing starts, particularly year-over-year increases, are associated with a healthy economy and solid employment and income growth. If the economic outlook is favourable, and job prospects are good, inventories of unsold homes will decrease, which will support housing construction.
Starts are quite sensitive to the interest rate environment, such that housing activity typically slows when interest rates rise and accelerates when interest rates fall. As a result, housing starts are frequently used as a leading indicator of future economic activity. After a period of rising interest rates, a slowdown in housing starts is frequently taken as evidence that the higher rates are starting to ‘bite.’
