Making Sense of Historical Housing Starts Data in Building Product Development Discussions

Making Sense of Historical Housing Starts Data in Building Product Development Discussions

You can apply historical housing starts data to guide business decisions regarding the best audience to target for sales and marketing, where and when customers are using products, and growth potential.

Customized market research can make the development and launch of a new product more streamlined and successful for your company by giving you insight into market needs and product satisfaction.  There are also key economic indicators that can help your organization define opportunity and develop an informed strategy. One important factor is housing starts. 

At a glance, this may seem like relatively basic data, but it can offer valuable insights into demographics driving demand, the health of the economy, as well as past and present housing and construction trends. From there, you can design a more robust and responsive strategy for launching and marketing your products to align with new home construction.

What are Housing Starts?

Housing starts are defined as the ground-breakings—or the excavations for the footings/ foundations—for new residential structures. For a multifamily structure, once construction has started, all units are counted as housing starts, which means a 25-unit complex would count as 25 housing starts.

The U.S. Census Bureau estimates housing starts monthly based on a survey of permit holders. About one in 50 permit holders are contacted to participate in the survey. Group-centric structures—such as dormitories or nursing homes—are not included.

Roughly 50 percent of single-family homes are started within the same month a permit is issued, but sometimes it may take an additional month or so. For multifamily housing units, about one-third of the structures are started in the month of issuing. Within two months, ground is broken on approximately 80 percent of multifamily structures and more than 90 percent of single-family structures, according to the National Association of Home Builders.

Once the structure is under construction, the bureau checks back each month—for up to 60 months—to see if it is complete, at which time the structure is no longer considered a housing start but a housing completion.

The U.S. Census Bureau and U.S. Department of Housing and Urban Development jointly release the New Residential Housing Report each month. It contains information on housing starts, along with data on building permits and housing completions, all of which comes from the homebuilder surveys.

Recent reporting, with housing starts and permits data for September 2021, showed privately-owned housing starts were at a seasonally adjusted annual rate of 1,555,000. This figure is 1.6 percent below the August 2021 estimate but 7.4 percent above the September 2020 rate. Single-family housing starts were at a rate of 1,080,000—roughly the same as August—while the September rate for buildings with five units or more was 467,000.

Why are Housing Starts an Important Economic Indicator?

In general, housing statistics provide insight into the state of the economy, as a steady supply of suitable housing options is key to sustaining economic expansion. Looking at the data from month to month, you can gauge how the economy is doing. 

It’s well known that people are more likely to build new houses during times of economic growth. During economic stagnation or recession, individuals are less likely to invest in new construction, which impacts each aspect of the industry, including production.

Additionally, the housing industry impacts several other sectors, such as manufacturing, real estate, construction, employment, raw materials and banking. And while housing starts can be impacted by various external factors, thus not telling a complete story about economic health, they’re a critical piece of the puzzle.

Using Housing Starts Data in Product Development

So, the question remains, what does historical housing starts data have to do with product development? For the building and home improvement sector, this data can be quite helpful. 

By comparing year-over-year or month-over-month housing information, you get a sense of how demand and the economy is faring, along with the state of the construction industry. You can conduct a more tailored evaluation by breaking down the data into what types of houses or residential structures are being built and where. 

  • Are developers and contractors building more single-family residences, or erring toward multifamily units as the general public seeks affordable housing? 
  • In which regions is there likely to be higher business confidence—and, therefore, greater demand—among remodelers and contractors? 
  • If new single- and multi-family houses are being built at a lower rate, are more people turning to renovations or remodels of their existing home?

This is the type of publicly available data you’ll want to pull into discussions as your company starts to develop new products and materials for the home improvement and construction industries. It’s also particularly meaningful as your team develops marketing strategies and makes distribution decisions surrounding the launch of a new product.  Should you focus on new homes?  Single vs Multi-Family?  What do homeowners and contractors want from specific products?  Where are they learning about new products and purchasing new products?  What improvements could be made to better meet their needs?

You may want to focus your attention on areas where the construction industry is thriving, as demonstrated by an influx of housing starts. Or you might have to adjust the pricing for a material or piece of equipment to reflect anticipated demand. Having the right data enables you to be flexible and make sound decisions about investments into new products as the economy ebbs and flows, impacting new construction along with it.

Doing Due Diligence for Product Development

In general, historical housing starts data can help at various junctures during the product development process for companies targeting the home building industry. You can apply this data to guide business decisions regarding the best audience to target for sales and marketing, where and when customers are using products, and growth potential. 

At The Farnsworth Group, we study several industry factors that impact product development, and we can help your organization understand implications to your business.  From there, you can define valuable custom market research, providing you with the objective information you need to successfully develop and launch a new product. Further, download the Farnsworth Contractor Confidence Index, updated quarterly, for the latest pulse on how PROs are feeling about the state of construction and home improvement.

The Farnsworth Contractor Confidence Index, Download