1 Sign 2014 Could Be a Wonderful Year for the U.S. Housing Market

A closer look at the trends in new home construction give some insight into what 2014 might have in store.

Jan 26, 2014 at 12:19PM


Housing starts, an economic data point, is one of the best indicators of the overall health of the housing market and what the home building industry expect the market to do in the near future. Let's take a close look at the recent data and what it may be telling us about the year to come.

The newest data
According to December's data, housing starts fell after surging to their highest level in years in November; however, the drop was much less than expected. Starts fell to an annual pace of 999,000 units, a bit better than the expectation of 990,000. Permits to build new homes only fell by 3%, indicating a potential rebound in the months to come.

Overall, housing starts increased by more than 18% from 2012, which is especially impressive when you consider the spike in interest rates in the second half of the year. 

History of housing starts
As you can see from the chart below, housing starts have nearly doubled their annual pace since the post-crisis lows of 2009, but are still a long ways off from historical levels. While we probably won't return to the homebuilding craze of the mid-2000s, the 1.5 million unit annual pace of the early 2000s seems achievable and sustainable, once inventories of existing homes (particularly foreclosures) work their way out of the market.  

US Housing Starts Chart

In other words, although the recovery has been great so far, there is still a ways to go for new home construction. As long as the economic conditions stay favorable, we could see the steady climb in housing starts from the last few years continue for several more.

What does it mean for 2014?
The fact that this year's new home construction data was so high, despite mortgage rates rising more toward "normal" levels, is pretty impressive. What it may tell us is that the overall housing market in the U.S. is beginning to return to normal. 


There was a widespread fear that without artificially low interest rates, people would stop buying homes, and the progress made in housing over the past few years would all evaporate. However, the numbers tell a different story.

Housing starts include both homes that are being built for a specific customer and those homes that builders are constructing on spec, meaning they plan to find buyers after the home is built. During the peak of the recession, newly built spec-homes were virtually nonexistent in many markets; builders were simply too nervous to build homes that were not yet matched with buyers.

Now, homebuilders aren't going to increase the number of homes they build unless they see a clear rise in demand. One building company in Illinois says that about 60% of the homes they are building are spec homes, as opposed to virtually zero just a few years ago. They also said the typical spec home they build is selling within 30 days of completion.

The data here, especially regarding permits (which represent future construction), indicates that homebuilders see high demand for new homes in 2014. The average pace throughout 2013 was 923,400 starts, and the fact that the permits issued in December correspond to an annual pace of 986,000 homes tells me that builders are seeing another good year ahead.

Will you make 2014 your best year yet?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers