The prospects for home building in 2014 are bright. National Association of Home Builders is forecasting a nearly 25% gain in total housing starts, with a 32% pickup in single-family construction. And the coming year will come atop the gains of 2013. NAHB expects that the final numbers will show that housing starts expanded almost 18% last year to a total of 921,000.

November housing starts data from the Census and the Department of Housing and Development show an uptick after weakness in home construction during the fall. Total housing starts topped an annualized pace of one million, the first time since 2008. Single-family starts rose to 727,000, a 20.8% increase over October and the highest since December 2007. Multifamily starts rose to 364,000, a 26.8% increase over October.

The government data also show that the seasonally adjusted total number of single-family and multifamily homes under construction has now increased for 27 months in a row, growing from 413,000 in August 2011 to 685,000 in November 2013. This continuous growth provides a robustness check on the state of the housing recovery and sometimes volatile monthly data.

Consistent with these data, builder confidence grew at the end of 2013. The December NAHB/Wells Fargo Housing Market Index rose four points to 58 as builders recovered from hesitancies in October and November. The increase puts the index back up to the peak it reached in August before the rise in mortgage rates and the uncertainty caused by the debt and deficit debate cooled confidence. The December index is 37 points above the December 2011 level. All three components also showed significant increases, with current sales rising 6 points to 64, the highest since December 2005. Expected sales increased 2 points to 62 and traffic increased 3 points to 44.

The Census also reported new home sales were steady in November, declining a statistically insignificant 2.1% from an unusually high October. The average for the first two months of the fourth quarter is the highest since mid-2008. The previous three months were also revised upward by a total of 88,000 sales. New home inventories dipped to 167,000, representing a 4.3 months’ supply and the lowest months’ supply level since the first quarter of 2013. 

Interest rates remain low, helping to support sales. Data from the Federal Housing Finance Agency indicated that the average contract interest rate for newly built home purchase loans fell to 4.26% in November. Rates can be expected to increase in a little in coming months, in part due to the Federal Reserve’s announcement that it will begin to taper its Quantitative Easing (QE) program of asset purchases. NAHB expects the 30-year mortgage interest rate to increase, on average, to 4.8% in 2014 and 5.6% in 2015.

In addition to interest rate increases, another headwind for housing demand is the recent announcement of lower FHA loan limits that will restrict their size in certain areas. NAHB estimates that at least 400 counties will see declines of more than 10% from 2013 limits, which will hurt prospective first-time home buyers.

Prospects are positive for multifamily development going forward. NAHB expects more than 8% growth for multifamily starts in 2014, and recent data support this forecast. As reported by the Survey of Market Absorption of Apartments, three-month absorption rates for rental (71%) and for-sale (84%) multifamily units increased for third-quarter dispositions of units completed during the second quarter. Both rates represent post-recession highs, indicative of healthy demand for multifamily housing. November CPI data indicate that real housing rents have increased by 1% over the past year.

Private residential construction spending was up 1.3% in November, with single-family spending up 1.8% and multifamily up 0.9% for the month. Improvement-related spending, a key gauge of the remodeling sector, was up 2.2% for November, and increased 7.1% for the first 11 months of 2013.

While existing homes sales, as reported by the National Association of Realtors, were down 4.3% in November, pending home sales increased for the month, as home buyers adjusted to a new interest rate environment and consumer confidence improved. In fact, survey data revealed a significant bounce back for consumer confidence in December, following the political drama in Washington that surrounded the partial government shutdown. Higher home prices helped, with the Federal Housing Finance Agency reporting slights gains for prices in October, although the recent run-up in prices has hurt affordability among first-time buyers, who now make up only 28% of existing home buyers.

Underlying these positive developments for housing is an economy that continues to grow, albeit never in the high gear that is typically seen after a recession. Gross Domestic Product grew 4.1% for the third quarter, higher than initial estimates and an improvement of growth rates of 2.5% and 1.1% for the second and first quarters respectively. However, while part of the upward revisions for the third quarter was attributable to consumer purchases, another portion was allocable to increases in inventories, which can foreshadow paybacks against growth in future quarters. Nonetheless, the recent data are positive for the economy overall.

In analysis news, NAHB published survey data reporting the average costs of constructing a single-family home in 2013. NAHB economists also examined long- and short-run trends in population mobility, with recent indicators moving in the right direction for home buying and home construction. In tax policy news, a recent tax reform proposal would revamp the nation’s energy tax rules, with significant impacts for home owners. Finally, NAHB published survey data of the federation’s associate members, those members who help builders build.