U.S. Homebuilders Are Bullish for 2014

Another round of better-than-expected U.S. housing data bodes well for growth in 2014.

U.S. housing starts were strong in November, after earlier weakness related to the government shutdown. Importantly, home builder confidence resumed its uptrend after a pause in the autumn.

According to National Association of Homebuilders:

The recent spike in mortgage interest rates has not deterred consumers as rates are still near historically low levels… Following a two-month pause in the index, this uptick is due in part to release of the pent-up demand caused by the uncertainty generated by the October government shutdown.

Our view remains that owner-occupied demand for housing will strengthen as the household formation rate returns to its long-term average. This is a significant bullish force for residential construction, although it may still take many more months to develop and will depend on the speed of the employment recovery.

Bottom Line: the U.S. housing market appears to have weathered the previous back-up in yields and a stronger labor market will entice potential homebuyers back into the market. Residential construction will continue to make a significant positive contribution to growth in 2014.

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