After three months of often exceeding expectations, sales and traffic at major subdivisions in 20 states throughout the country returned to earth in June, according to a proprietary survey of new-home sales managers done by Wells Fargo Securities. The results are an early indication that new-home sales may slow this summer.
The percentage of sales managers reporting better-than-expected traffic declined from 46% in May to 27% in June, more in line with historical averages. There was a similar drop in the percentage of sales managers reporting better-than-expected sales. That number dropped from 49% to 22%. The percentage of sales managers reporting that sales and traffic were “worse-than-expected” stayed constant.
“Houston was the strongest market we surveyed while Northern California and Denver showed the most negative deterioration from May,” wrote analyst Carl Reichardt, who interpreted the results as a possible resetting of expectations, since managers are now accustomed to a better business environment.
“In addition, some seasonality probably impacted the data, with the spring selling season ending in late May. But there are increased negatives as well: SMs cited rising interest rates, a depleted buyer tax credit in California, and in some cases, insufficient standing inventory as key elements hurting sales.”
“We believe builders are selling homes at about 2/3 to 3/4 of a "normal" pace -- normal being one net sale per week as a rough rule of thumb for an average national builder.”
Quotes from the telephone survey revealed a number of problems in the market:
Atlanta: “Mortgage rates have been a hassle because folks are afraid to buy, thinking rates will continue to increase [before they make a decision on a home]. We’ve dropped our prices, though, so we still have a good number of inquiries.”
Charlotte, N.C.: “We’ve had a good sales year, but I think the market has leveled out.”
Dallas/Ft. Worth: “Simply put, business is very good. I sold more houses in May than June, though.”
Indianapolis: “We saw great traffic, but people want more from us than we are able to give. So we were not able to honor that.”
Northern California: “It hurt when interest rates went up, and the California tax break depleting just killed us.”
Boyce Thompson is Editorial Director with Builder magazine.