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It turns out that the idea of stimulating home sales as a way out of recession has a precedent in recent history. Back in 1975, the Federal government passed a tax relief act to get the economy moving by creating more incentives for people to buy homes. The result was immediate and significant: nationally, housing starts doubled, from 700,000 to 1.4 million homes the next year.

Why are housing starts a good indicator of economic health? In fact, why is housing’s relative health measured by starts and not sales? As you read articles about this economic downturn, there are five different terms used in discussing the vitality of the homebuilding industry—permits, starts, completions, inventory and sales.

The permitting process is a good indicator of housing to come. When builders apply for permits, they pay both for permitting and “impact fees” from the cities, counties and school districts—which run from $50,000 easily into $100,00 per home. Housing starts measure the number of homes under construction. Starts mean more than a measure of supply to come; they are also an indicator of workforce jobs and activity. Completions, as the term implies, track the number of finished homes. When you read about inventory units or standing inventory in stories about supply and demand, they are talking about homes that were completed but are now unsold. Finally, sales figures count the homes taken through the contract process; those reports are released in publicly recorded documents.

Last year was the state’s homebuilding industry’s worst for home starts since they started keeping records. In California, the 65,380 permits pulled in 2008 represent a 42% decline from the previous year and a whopping 69% downward change since the peak of the market in 2004.