Following a dip in sales in recent months, demand for new homes is once again on the rise.

Our new research shows that buyers are gradually moving off the fence. Metrostudy keeps weekly tabs on consumer interest in seeing builders’ models, and in signing a contract to buy. Builders call the percentage of people walking in the door who actually end up buying the conversion rate—conversion rates have been miserable lately. In recent months, the flow of foot-traffic through builders' models has been extraordinarily strong, yet an unusually small percentage of them actually moved ahead with a purchase. Some builders were reporting a long "gestation" period between the time a visitor walked into their showroom and the time they signed a contract to purchase. Other builders said they were hearing a lot of "we'll be back" and then never see them again.

The reason for all of the hesitation? Many prospective buyers had been experiencing "sticker shock" when they got to the builders' sales offices, following the extreme run up in home prices that occurred in 2013.

Of course, the "good" edge of that sword is that the run-up brought a large number of people who had been under water back into the black. This set free many thousands of people who had felt "trapped" in their prior home, and therefore unable to buy a new home.

Metrostudy data on traffic, sales, conversions and cancellations for April and May show mixed results, with a continued hangover in Phoenix, a recovery to last year’s sales paces in Southern California (strongest in the coastal areas), and strength in the retiree-oriented areas of Florida.

Now, at last, builders are seeing a higher percentage of people who are taking the plunge and buying a new home. The recent strong pace of job growth nationwide has to be given credit for much of this improvement. More jobs means more income, and greater confidence. More people move out of Mom's basement, more households get formed, and there is increased demand for homes—that is the basis for our base-case forecast for this year and next.

Digging a little deeper, we see that not everything is equally rosy. The bulk of the new home buying is still in the high-end. Move up buyers have excellent credit, great incomes, and flush savings accounts, and are usually buying larger homes than they had previously. The entry-level segment of the housing market, meanwhile, is still under-represented compared with historical norms. This certainly is not because of a paucity of people who want to buy a home, but rather a problem of lingering bad credit for many would-be buyers, and a residual reluctance among banks to lend to people with less than spotless credit. The good news is that many people's credit scores are improving, and banks are loosening slightly in order to make more mortgage loans. This process simply takes time.

That said, I have recently met with executives from various private homebuilding companies, and one public one (LGI), that are successfully and profitably building for the entry-level segment. A year and a half from now, watch for smaller homes, smaller lots, and more homebuilding in areas that are farther from the urban core. The first-time homebuyers are starting to gradually come back, and we will see them comprise a noticeably larger percentage of new home sales within two years.

In addition to the differences among home buyer niches, there are also differences in the level of new home demand across different markets.

The Texas markets continue to boom, according to our research. Texas benefits from not only high oil prices, but also from having been on a different cycle than the rest of the country before the boom and bust ever happened.

The California markets are doing well, particularly in the coastal submarkets. Sales paces are back up to last year’s levels in Southern California, but the inland submarkets are still lagging.

Phoenix net sales per subdivision are 2/3 what they were last year, and HALF what they were in 2012! Traffic is on par with last year, but conversion rates are under 4% (compared with 8%-10% in the past two years. This market is suffering from the hangover brought by the party-ish price increases of early 2013.

Las Vegas builders are doing better, particularly the large builders. The big guys are averaging more than 4 sales per month, which is good for any market! It’s great for Las Vegas! Conversion rates are at 5%, which is not far behind last year or 2012.

Salt Lake City had seen a flocking of traffic to builders’ models in the first couple of months of the year, but in mid-May, conversion rates fell, and cancellation rates rose to over 30%!

The Virginia area of Washington DC remains very strong, with solid conversion rates (over 5%) and very low cancellations.

Metrostudy’s new field study (350 researchers drive nearly 500,000 miles every 90 days, counting all lots, starts, move-ins, and units of new-home inventory) is revealing some interesting trends and turning points. Detached single-family housing starts rose by 5% comparing the first quarter of 2014 with the previous quarter, and were up by 9% compared with a year ago.

The “coastal sunbelt” states are doing the best in terms of sales and starts. Builders were busier than last quarter and last year in all of the Texas markets. The increased building activity is putting strains on labor supplies. Labor shortages are still an issue in the Texas MSAs. Lot prices are at record highs in some Texas submarkets. Florida housing production is up in most markets. There seems to be more strength in the retiree-oriented markets than in the job-driven markets like Tampa. Tampa single-family starts fell by 22% versus the year-ago pace.

In the south, Nashville has seen a surge of new home sales and starts as builders from all over the country have entered that market, opening up new subdivisions. Single-family starts in Nashville rose by 18% in the first quarter of 2014, up 30% from a year ago. Other markets in the south have seen increased housing activity, but not as much as Nashville. Atlanta, for example, saw an increase of 5% in the latest quarter, and is up 24% from a year ago. The Triad of North Carolina had a strong run during the last 12 months, while Charlotte has been flat. There has, however, been a surge in the South Carolina portion of the Charlotte MSA (York County). In Raleigh-Durham, our concern is that too many builders are crowding into the move-up niche.

Northern California was hit hard by the ‘pause,’ with starts falling 5% on the quarter, and 21% versus 1Q of last year.

Denver is flat, partly due to labor shortages, but demand there is fundamentally strong.

Overall, the picture is one of a lumpy recovery, but one that has been surprisingly strong in many markets.

Learn more about markets featured in this article: Salt Lake City, UT, Washington, DC, Raleigh, NC.