Custom homebuilders have enjoyed 2013 as a great year for the housing market. In this post we’ll take a look at what made 2013 a great year for builders, what potential roadblocks the market will encounter in 2014, and the National Association of Home Builders (NAHB) predicts numbers for the coming year.

There are several factors that have helped make 2013 a prosperous year for custom homebuilders. As the economy continues to recover from the recession, the market is able to support a necessary increase in new home prices. College graduates and young adults, forced to move back in with family or find roommates, are finally able to afford a mortgage. The market had been producing 1.4 million units at its height, but fell to a low of 500,000 during the recession.

NAHB Chief Economist David Crowe explains, “The cards are in play for a decent and fairly strong recovery in 2014 and particularly in 2015. From the standpoint of GDP growth, housing has been a plus, growing at two, three and four times the rate of the rest of the economy in recent quarters.”

However, the 18% increase in housing starts custom builders have experienced this year have not come without struggles. First, the announcement in July of an increase in mortgage rates slowed sales for the time period following the announcement. Credit conditions have also been made more strict, making it more difficult to qualify for a mortgage in the first place; as of January 10, however, the Ability-to-Repay rule will lessen these tight conditions.

Due to the recent increase in sales, the supply of available new houses has decreased. Scarcity of labor and a low supply of building materials have made it tougher for companies to start counteracting the currently low inventory. This has also led to an increase in new home prices for both single-family and multi-family units.

The National Association of Home Builders predicts that the end of 2013 will mark 924,000 total housing starts, up 18% from 2012’s 783,000 units. Housing starts for multi-family units are predicted to increase by 20% for the year, with single-family starts coming in at 17%.  According to NAHB projections, we can expect to see an additional 31% increase in 2014, which is excellent news for custom builders across the United States.

The National Association of Home Builders (NAHB) reports that new home sales of single-family units are up 7.9 percent for the month of August, 2013. This figure translates to a seasonally-adjusted rate of 421,000 units in August, which is great news for production and custom builders alike.

These new figures come from the Department of Housing and Urban Development in conjunction with the US Census Bureau. August’s sales increase partially offsets a dip in sales from July, as homebuyers reacted to the new increase in mortgage rates.

Rick Judson, NAHB chairman and North Carolina homebuilder, further explained the chain of events. “Consumers are adjusting to the reality of today’s higher rates following a period of record-setting lows, and today’s sales report provides evidence of that.”

Judson continued, “We expect to see more buyers coming back to the market as the psychological effects of the rate gains continue to wear off, particularly since, even after the recent spike, mortgage rates remain exceptionally favorable on a historic basis.”

In August, NAHB reported that new home sales plummeted by 13.4% for the month of July, due to the recently-announced increase in mortgage rates. While rates continue to remain historically low, homebuyers are still getting comfortable with the new rate announcement in July. August’s nearly 8% increase in sales reflects a growing homebuyer confidence.

“Sales of new homes bounced partway back in August from an unusual low in July,” said NAHB Chief Economist David Crowe. Crowe furthered, “That said, we are only about halfway back to what would be considered a sustainable level of activity in a normal economy, and the ongoing housing recovery continues to be slowed by consumers’ concerns about interest rates, as well as weak job growth and uncertainty about what’s happening in Washington.”

The Midwest posted a sales increase of 19.6 percent, the South gained at 15.3 percent, and the Northeast posted gains of 8.8 percent. The West, as an exception to the rule, posted a 14.6 percent decline.

Custom builders should breathe a sigh of relief when it comes to the news of August’s sales increase. The overall new single-family home supply decreased by 5.0% in August, and builders can safely continue to construct new homes without worrying whether they’ll sell. NAHB reports that many metro markets are improving across the country as well.

According to the National Association of Home Builders (NAHB) on September 9, a record high of 291 metro areas were listed in the Improving Markets Index, or IMI. This shows a gain of 44 markets since August and is an all-time high for the IMI’s list since it was first used 2 years ago.

As a custom builder, what does this mean for you?

First, it means things are going well. The Improving Markets Index only includes metro areas whose markets have shown at least 6 months increase in each of the following categories: housing prices, housing permits issued, and employment growth. These figures are collected from Freddie Mac, the US Census Bureau, and the Bureau of Labor Statistics, respectively.

Increased employment means individuals will have more income and perhaps be able to finally afford a custom home. Increased housing prices shows that homebuyers’ wallets are healthier and can afford custom. More housing permits means more development, and it’s a safe time to be expanding your builder business.

“Just over 80 percent of the 361 metros tracked by our index are showing consistent growth in three key measures of housing market strength – prices, permits and employment,” said National Association of Home Builders’ Chairman Rick Judson. Judson, a homebuilder himself, continued, “While there is still plenty of room for growth, this is an excellent indication of how the housing recovery has begun to take hold across more geographic areas.”

Indeed, the number of improving markets increased not in a single geographic isolated area, but across the country in cities like St. Cloud, Minnesota; Spokane, Washington; Milwaukee, Wisconsin; and Brownsville, Texas. Custom builders across the country can expect to see a continuation of the already-strong housing market.

“The dramatic increase in markets qualifying for the IMI in September was partly due to a recent improvement in the way that Freddie Mac measures home prices, which resulted in stronger gains than previously reported,” explained NAHB Chief Economist David Crowe. “Even so, the broadened list of metros on the IMI continues to demonstrate the slow but steady gains that individual housing markets are making to bolster the national outlook.”

A full list of the 291 improving markets can be viewed here.