Last year, the spring selling season tanked. But home buyer activity during March, April, and May 2015 provides a real indication that the housing market is stabilizing. Housing affordability remains as an impediment for buyers, as tight inventory of available new homes drives up prices, but many builders are increasing their community counts to meet demand and ease inflation.
Compared with three-month composite scores for new-home demand during the spring selling season, June scores from Metrostudy regional directors show that builders are not disheartened by the falloff of summer. June ratings for new-home demand leveled out with spring composite scores in 21 markets, and only eight markets fell below spring numbers. This proves builder momentum is still strong, even though the majority know sales will slow (or already have slowed) down.
Freddie Mac's latest Multi-Indicator Market Index release scored housing in just over half of 50 U.S. states as "stable." The Southwest and West regions are leading the way for market health, echoing demand scores and commentary from regional directors in Denver-Colorado Springs, Salt Lake City, Las Vegas, Dallas-Fort Worth, and Seattle.
In Salt Lake City, traffic and home sales were strong in June despite the normal slowdown; resale and new construction sales in Seattle remain strong; and demand for all types of housing is high in Denver. These three markets were among seven that received a score for new-home demand in June that was higher than their three-month composite score.
Despite dropping a notch in June from the composite score, first quarter new-home starts in Las Vegas were at the highest level in years. "The spring selling season, continued strong job growth, and in-migration is driving housing demand," says regional director Greg Gross.
Albuquerque is a weak outlier among stronger markets in the Southwest and West, scoring a 4 on our index in June. But regional director John Covert says it's showing signs of improvement. "All eyes are on employment gains and resale activity—both are finally heading in the right direction at the same time, though nowhere near levels needed to push demand higher for new homes," he says.
With low scores spanning the entirety of our index since April 2014, it is telling that although demand is still below average, Covert is optimistic about the future of the market.
April Showers Slow Sales and Starts
Spring selling season was good for builders; the sentiment gauge of builder confidence rose in April for the first time since January, and new-home starts were record-breaking. The sales pace of 546,000 homes annually in May is a success, but seasonally adjusted, that's about 75% of the average annual pace from 2000 to 2014.
Many markets were plagued with rain this spring, resulting in delays and slow development. Ironically, many of the highest demand markets were hit hardest, also in the West and Southwest. Regional directors in Salt Lake City and Denver report that building and development were delayed due to a wet spring, and buyer traffic was muted as a result. Texas markets, namely Dallas-Fort Worth and Houston, were most affected by weather conditions.
In Dallas-Fort Worth, regional director David Brown says many communities anticipated to have closings this year likely will be pushed to 2016, and constraints with development contractors are likely to remain in the second half of the year. "Prices are expected to continue to increase at above-normal rates because of the low inventory and strong demand," he says.
Because these markets were successful during the selling season despite the weather, it's hard not to wonder how many more homes builders may have been able to close. Regardless, it appears that buyers are coming back to the market and, if anything, there's not enough inventory to provide them with the homes they want to purchase at a reasonable price.
If spring selling season is a barometer of housing recovery, this year's take looks promising. The strength of recent existing and new-home sales—as well as continued job growth—could make 2015 the best year for housing since the recession.