Housing starts is important because it is a leading indicator. Sustained declines in housing starts slow the economy and can push it into a recession. Likewise, increases in housing activity triggers economic growth. Larger-than expected monthly increase or increasing trend is considered inflationary, causing bond prices to drop and yields and interest rates to rise. Building permit data is released at the same time as housing starts.
Permit activity provides insight into housing and overall economic activity in upcoming months.
It is so important that it is included in the index of leading economic indicators. Housing activity is directly impacted by mortgage rates. Higher interest rates increase housing costs and reduce the number of qualified borrowers, thus, a decline in home sales and drop-off in starts. Conversely, lower interest rates increases housing affordability and spurs homes sales and housing starts. Housing data can have a significant impact on the bond market.