New home starts will rise steeply in the next two months, as construction gets underway this spring, according to an analysis of builder applications and housing start report from January and February, according to the Mortgage Bankers Association.

“Single family housing starts, an important indicator of US economic health, fell by more than 15% (not seasonally adjusted) over the first two months of the year,” the MBA report says. “MBA's Builder Application Survey Index and estimates of new home sales rose in January and February, however.”

Looking at the two measures in this chart below, MBA moved their BAS index (the gold line) forward by two months to forecast where things are going based on the pattern of how builder mortgage applications have led housing starts by about two months.

Click to enlarge

(Source: MBA, U.S. Census)

“A start occurs when excavation for a home's foundation first takes place. New home sales are recorded at the time a purchase contract is signed, and mortgage applications are often made at about the same time as the sales contract,” MBA says. “Especially when housing production is slow, it is not unusual to sign a contract and a mortgage application prior to the actual housing start.”

MBA says that this recognition helps to make sense out of the recent dip in housing starts following two slow months of builder applications in November and December 2014.

“Using this same insight, BAS results from January and February predict that starts will rise steeply in the next two months, depicted by the dashed line in the chart, as construction gets underway this spring,” MBA says.