This month marks one year since Metrostudy added Seattle to its exclusive market footprint. We also added Seattle to our monthly demand index of new home and lot demand from regional directors in 36 markets across the country. Most would say housing has made progress in that time period, but what our data shows is that year over year, as new home demand is still growing, new lot demand is stalling.

New-Home Demand On the Upswing

More buyers are entering the market this year, and builders have created products and strategies to tap resurgent interest among discretionary buyers. In August, new-home sales jumped 5.7%—the fastest pace of sales seen for new homes in seven years. Our own new-home demand score data, comparing September 2015 with September 2014, mirrors that strength.

Product innovation, financing options, and a hint that builders may tap the breaks on price increases are three catalysts that may explain new-home sales momentum. Broad economic growth, steady job gains, and low mortgage rates across the country also factor into a more stable environment for potential buyers to take the home buying plunge.

Year over year, half of our Metrostudy regional directors reported increased demand for new homes in their markets, while 33% of markets wound up at the same level. Decreased demand for new homes was reported in six markets: San Diego, Southern California, Naples-Ft. Myers, Las Vegas, Houston, and St. George-Mesquite.

Dennis Handler, regional director of the San Diego and Southern California markets, reports that demand is strong in both markets relative to a limited supply of product, but "affordability and buyer confidence remain as primary inhibitors" in San Diego, while a tepid sales environment inhibits Southern California, despite fairly stable prices.

Third quarter sales typically are the slowest of the year in Florida's Naples-Ft. Myers market, which still maintains a high score of 7 (on a 1-to-10 scale), despite the year-over-year decrease. Price is a big barrier in that market. Regional director Tony Polito says the median new single-family home is "73% more expensive than the median existing home price based on this year's sales." The story's the same accounting for the year-over-year dip in Houston, albeit, it remains one of the nation's strongest new-home markets. Houston regional director Scott Davis reports that much of the slowdown coming into the fall season is highly related to pricing. "We have seen the spread between new and used homes double in the last three years," Davis says.

The Phoenix-Tucson market shot up on our new-home demand scale since September 2014, moving from 3 up to 7, on the 1-to-10 scale. Regional director Rachel Cantor reports that build times have become a real problem for builders trying to meet closing goals for the year, and traffic still has not significantly increased year over year.

"Most builders feel that it is the millennial buyer and the bounce-back buyer purchasing right now," she says, that are boosting the market on our demand scale.

Leveled-Out Lot Demand

While new-home demand scores mostly increased across the board, 44% of Metrostudy regional directors reported that lot demand scores softened from September 2014 to September 2015. Ten markets experienced an increase in lot demand year over year, and 10 markets experienced a decrease in lot demand year over year, comically mirroring the same ambivalence many builders are experiencing when it comes to making decisions about land deals.

Despite Metrostudy's report of a 20% increase in second quarter lot deliveries, year over year, the lot pipeline still appears to be choked up. Scant supply in prime locations, or overly ambitious price tags posted by land sellers, are forcing builders to hold out or try to raise their own prices on finished product. While it's great news that new lot demand held steady rather than increasing, the growing lot delivery pipeline has not kept pace to allow builders to access new home sites efficiently.

The Phoenix-Tucson market once again changed most dramatically, climbing 5 points on the 1-to-10 scale from a 2 to a 7. This year-over-year increase is a sign of buyer demand, which corresponds to new-home demand mojo. In September 2014, Cantor reported that builders were "in wait-and-see mode" to determine if they had enough buyer demand to justify their future pipeline. This year, builders are still waiting to pull the trigger, but construction constraints make builders wonder if the lots they buy will come out of the ground when they expect.

Demand for new lots also increased in the Triad market, from a 3 to a 7, and in the Reno market, jumping 3 slots from a 5 to an 8. Increased development and demand in both markets stem from improved economy and job development (the Tesla gigafactory is bolstering Reno). Supply in both markets is healthy (and high in the Triad), but demand scores remain elevated because of prevailing price levels.

According to Jay Colvin, Metrostudy's regional director of the Triad market, "the majority of vacant lots are owned by banks that cannot afford to sell the assets at distressed prices."

The Bottom Line

Commentary over the past year has walked a thin line between optimism and pessimism regarding the status of the housing recovery. However, the amount of markets that have posted increases in new home demand year-over-year (despite labor shortages, delayed construction due to inclement weather, and high material costs) indicates that things really have improved. Very, very (very) gradually, the economy has been strengthening, and potential home buyers are becoming less fearful.

Whether cautious optimism of both builders and buyers is a reaction to false hopes of recovery that many thought would come sooner (or the traumatic scars from the recession), index after index has been gaining momentum. Although some data has been mediocre and disheartening, the majority have been pretty positive, including our own. Exactly half of the markets surveyed by Metrostudy regional directors have seen higher demand since last September, despite the routine fallout after Spring selling season.