Housing construction, measured by housing starts, leads GDP in a number of countries. Measured as residential investment, the lead is observed only in the United States and Canada; elsewhere, residential investment is coincident. Variants of existing theory, however, predict housing construction lagging GDP. In all countries in the sample, nominal interest rates are low ahead of GDP peaks. Introducing long‐term nominal mortgages, and an estimated process for nominal interest rates, into a standard model aligns the theory with observations on starts, as mortgages transmit nominal rates into real housing costs. Longer time to build makes residential investment cyclically coincident.