DEC 9, 2013 1:10pm ET

Builders Will See Better Year in 2014, Economists Say

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Economists at Wells Fargo Securities expect to see 20%  increases in new home sales and single-family starts in 2014 while existing home sales will slow to a single-digit pace.

“Home price appreciation should slow, as investor demand cools further, and “builders discount newer homes to entice buyers back into the market,” according to a new report by the WFS economics group.

WFS is forecasting that new home sales will be around 530,000 units in 2014, up 23% from this year. Meanwhile, builders will break ground on 760,000 single-family homes in 2014, compared to 620,000 this year.

These sales and starts numbers are low compared to historical levels. And it reflects the “aftershocks of the housing bust, which have reduced buyer power and led to restrictive lending criteria,” says the WFS Housing Chartbook.

Meanwhile, affordability continues to be an issue, particularly for first-time homebuyers. The drop in sales this summer due to rising mortgage rates “shows how fragile the housing recovery remains,” the November Chartbook says.

In addition, demographics are “boosting demand” for rental units and “restricting demand for first-time buyers, trade-up purchases and second homes.”

The WFS economists are forecasting existing home sales will rise 4% in 2014 after a 10% increase this year.

“We remain optimistic that home sales, new home construction and home prices will all continue to improve in the coming year, even though conditions will be more challenging on a number of fronts.”

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