By almost all metrics, 2013 has been a great year. The job market continued to improve, housing is rebounding, and stocks have been soaring. Most of the major economic and housing indicators are either finishing the year at or near multi-year highs. In the points below, we highlight some important housing indicators and analyze where they stand near year’s end.
Housing starts jumped to almost a six-year high. Housing starts surged almost 23% in November to a seasonally-adjusted annual rate of 1,091,000 units. Residential construction activity is at its strongest pace since February 2008. Strong gains in both the single- and multi-famly segments fueled the surge in activity.
Building permits are also surging. Building permit activity is also near a six-year high and exceeded an annual pace of over 1 million units for the second straight month in November. Since permits are a future indicator of construction activity, expect housing starts to remain elevated in the early part of 2014.
New home sales are on pace for their strongest year since 2008. Right out of the gate in 2013, the seasonally-adjusted annual rate of new home sales reached their highest levels since July 2008. There was a drop in demand after the summer but for the most part, new home sales were strong for the majority of the year.
Builders are confident. The NAHB’s housing market index in December reached a reading of 58 which is the highest it has been since November 2005. Underlying strength in the overall economy and historically low mortgage rates are giving builders confidence to make land deals and to start ramping up much needed inventory in the new home market.
Mortgage rates remain historically low. The average rate on a 30-year fixed rate mortgage is up about 110 basis points from its all-time record low set November of last year. Although rates have been on a steady rise throughout the year, they remain significantly lower than their historical average and even lower than they were during the housing boom.
It was just about a year ago that the Fed embarked on a bold move to increase their bond-buying program to $85 billion per month in order to fuel economic growth and perpetuate a housing rebound. Fast forward a year later and the Fed is now cutting their monthly bond buying by $10 billion to $75 billion per month. This move was interpreted as an act of confidence that the underlying economy is getting stronger. The market is able to stand on its own without additional stimulus. The “taper” has begun.We are now several years into a bull market cycle for both stocks and housing. While 2013 offered a relatively smooth ride, next year will likely be a little bumpier. In the chart below, we utilized data from Zonda which gives us over a 40-year history of the most important housing and economic indicators and found that since 1972, housing starts have not increased for more than five consecutive years at any time over that span. 2013 will mark the fourth consecutive year that housing starts have increased. Also according to Zonda, we are still running about 25% below our historical average for housing starts activity. That is why utilizing the expertise at Meyers Research for your business is more important than ever as we enter this critical New Year.