The Commerce Department reports their first read on June new home sales later today. Economists expect to see a slight increase of 2% in the seasonally adjusted annual rate of new home sales. Like their reporting on permits and starts, this series is based on a relatively small survey of builders and so it often results in month to month changes that are not statistically significant and the data are also subject to significant revisions.
If the number fails to meet expectations, expect the market commentary to focus on the impact on higher mortgage rates that started rising at the end of May. In the production homebuilding market we are not seeing that rising rates have a clear negative impact on sales. In fact, our data suggest that if anything rising rates are causing traffic to jump as shoppers clearly understand that rates are likely to be higher in the future but by historical standards rates remain incredibly low.
New home traffic and sales contracts in June 2013 continued to increase, according to data from the Metrostudy weekly traffic and contract survey. Year-to-date traffic for June is up 58% with a 33% one-month increase over May, while new home sales have climbed 47% over the start of the year with a 19% monthly jump. Both traffic and sales are also outperforming the prior year, as June shows a 52% rise in traffic and a 30% increase in sales over the same period in 2012.
Fluctuations on a weekly basis continued through June, where, despite a mid-month lull, activity surged at end the month with the highest traffic and contract averages since the robust spring season in April. In the most recent numbers for July, traffic activity stayed strong through the July 4th holiday, but buying decisions seemed to be delayed during this time. Sales activity improved for the following week ending July 14, 2013 with a 14% jump in average contracts for just the seven-day period. Traffic activity maintained its upward trend at a 6% increase over the prior week.
As the average weekly traffic continues to rise, successful conversions will drive the overall momentum for contracts seen emerging in the latest July data. Simply put, at least for the production homebuilding market that our field collected data represent well, rising rates are spurring more traffic, not less. Contracts are not quite keeping pace, so the conversion rate is falling, but it’s too early to tell if that change is a reflection of the holiday or a normal seasonal pattern, or possibly a reflection of a new batch of shoppers who are earlier in their decision making process, or if indeed affordability and/or qualification has started to become a problem.
In reviewing annual traffic growth through June across individual market areas, Imperial Valley, CA tops the list. The market experienced a 148% increase in its three-month moving average, followed by Southeast Valley, AZ at 69.32%. It’s interesting to note that we have markets in three regions represented in the top five for traffic growth: the West, the Midwest, and the Mid-Atlantic.
Moving to contract growth, Calvert County, MD, tops the market list. The market experienced a 66.67% increase in its three-month moving average, followed by Fauquier County, VA at 34.78%. The same regions are represented in the top 5 markets for contract growth, but the specific markets are different with the exception of Charles, MD, which makes the top 5 on both lists.
It will be fascinating to see how the numbers and rankings change after July is complete as then we will have a much clearer read of whether or not the mortgage rate rise has indeed impacted the rate of new sales.