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.


Learn more about markets featured in this article: Dallas, TX, Charlotte, NC.