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After picking up steam in 2013 for the first time since the recession -- and seemingly heralding a robust recovery -- housing starts nationally for single-family homes may not have been as impressive by the end of Q3 2014 as you might have expected -- depending on whether you are a glass half-full or half-empty type of observer.

The year started out with a cold winter in many parts of the country, halting construction and forcing many motivated buyers to purchase existing homes. As the months passed, an alternately promising, but just as often sluggish single-family, new-construction housing market was attributed to everything from higher home prices to the effects of global instability -- including the Ebola outbreak -- on financial markets.

Builders remain confident -- just not quite as much
On October 16, 2014, the National Association of Home Builders' (NAHB) reported its NAHB/Wells Fargo Housing Market Index (HMI), which gauges homebuilders' confidence in the housing outlook, dropped five points in September from its steady four-month gain and nine-year high over the summer.

Still, the builders have continued to be positive, just a little less so. Any HMI over 50 is considered an indication of confidence. October's HMI of 54 aligns more closely, according to the Chairman of NAHB, Kevin Kelly, with "...the gradual pace of the housing recovery." NAHB Chief Economist, David Crowe, agrees, pointing out "the drop was from a nine-year high of 59 in August and returns the index to levels experienced during the start of the summer." He finds it "not surprising."

Where did the housing market go in Q3?
The housing market was showing signs of significant recovery as 2013 came to an end -- before the winter of slowed things down. But in July 2014 the market rebounded again with housing starts that matched a post-recession high of 1.1 million.

Housing permits, a usually reliable indicator of new construction starts, increased overall by 1.5 percent in September 2014, but solely on the strength of multifamily housing, which has been the mainstay of the recovery. Single-family dwelling permits actually dropped in September by half a percent, even as starts for single-family homes on the heels of revised August figures were up 1.1 percent. That, however, was still 9 percent below the post-recession high of November 2013. Meanwhile, multifamily housing starts for September increased 16.7 percent.

David Crowe points to "long-run improving trends" as the reason builders remain confident, but a number of factors may be to blame for the fits and spurts in the market:

  • tight credit
  • slow wage growth
  • lack of access to skilled labor
  • lots not ready for building crews
  • increasing costs of construction materials
  • mediocre interest from first-time home buyers
  • investors backing away from higher new home prices

Every silver lining has a cloud?
The third week of October brought good news for home buyers looking for financing, with 30-year fixed rate mortgages dipping below 4%, the first time in more than a year. The bad news is that not so many potential home buyers have the immaculate credit history necessary to obtain that kind of financing.

Increased material costs could put constraints on builders who are aware of home buyers' reluctance and financial inability to jump into the market if home prices continue to rise. Costs for lumber, gypsum (for drywall) and stainless steel for kitchen appliances have all seen recent increases, which sooner or later builders are going to have to pass on to buyers.

Median home prices, which include resales, continued to rise in September, but at 5.6 percent, a much slower pace than the double digits of a year ago. Buyers looking for better pricing may be finding it in existing homes for sale. The National Association of Realtors (NAR) reported existing home sales hit new highs for the year in September while new home sales leveled off.

One factor troubling economists about the health of the housing recovery is the lack of first-time buyers, who, for the third month in row, accounted for only 29 percent of home buyers in September. Real estate agents and economists would expect first-time buyers to comprise 40 to 45 percent of all home buyers for a healthy housing recovery.

With all of the volatility, what should single-family home buyers and sellers expect the housing market to look like as 2014 comes to a close? Zillow's Chief Economist, Stan Humphries, describes housing as having "hit an inflection point where the market was rapidly rebounding, and now the market is normalizing," which "can be confusing for consumers, but it's kind of par for the course as markets transition to the new phase."

Much like the economy in general, housing is improving, but at least for now you may not want to get overly excited every time the news sounds promising.

This article originally appeared on improvementcenter.com.

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