January Data Not So Clear on New Home Sales, But Consumers Intend to Buy
The first read of January new home sales from the Commerce Department was released this morning. Economists had been expecting a decline of 3-4 percent from December on a seasonally adjusted basis, but instead a 10 percent increase was reported. That decline stood out compared to the existing home sales January report last week. Looking at the new data, Metrostudy’s more detailed traffic and sales data, and recent survey data on consumers’ plans to buy a home, we continue to expect that we will see a positive bounce once winter ends and the spring selling season begins in earnest.
The headline increase, especially being a surprise, is immediately drawing some concerns. You don’t have to look further than the footnote to see that the January reading relative to the December reading was not statistically significant, meaning the government isn’t certain if there was an increase or a decrease.
Looking at Metrostudy’s data on traffic and sales per new home community, we are seeing that 2014 has started better than 2011 and 2012 but not quite as strong as 2013, with much of the year-over-year decline likely a result of a much tougher winter. In January, the average number of traffic units per community was only down 5% relative to last year. Traffic in January was up 39 percent over December, with most markets covered showing positive growth month over month. Indeed, over 40 percent of markets covered showed growth in traffic compared to January 2013 as well. January is consistent with annual the trend over the past three years in showing the first monthly traffic increase following the seasonally declining months of November and December. In addition, the month-to-date February traffic average shows that the upward trend is continuing.
Reported new contracts per community were weaker, representing more of a decline year-over-year. Only a quarter of covered markets saw a year over year increase in new sales in January, which is a continuation of a softening trend in the sales conversion rate seen in the second half of 2013. Despite continued harsher weather than last year, we are seeing contract growth continue into mid-February at a pace stronger than last year.
What this tells me is that consumers are shopping but they are not signing the dotted line as quickly as they did at the beginning of 2013. At this point, the pace is in keeping with a normal seasonal pattern, with a decided improvement over the end of the year. While weather may be playing some factor, especially in the minor decline in traffic, it cannot be blamed for areas with a weaker sales start. It’s too early to tell exactly what’s causing the slower start to new contracts, and it’s likely a combination of factors such as limited inventory, higher prices, and slightly less optimistic consumer confidence.
Yesterday the Conference Board reported that the Consumer Confidence Index declined moderately by 1.6 percent from January, with the decline being driven by expectations of future conditions rather than assessments of present conditions. Clearly if consumers are concerned about the future they may be less inclined to make major purchase decisions. However, the underlying data collected on intentions to purchase a home do not suggest we are in for a tough spring.
For plans to buy a new home within six months, February saw an 11 percent decrease from January’s reading to 4.8 percent of households indicating they are planning to purchase a home. However, this is historically the case with the February reading. In both 2012 and 2013, February was the lowest month of the year for home buying plans with an increase following in March as the spring selling season commenced. Despite this seasonal decline, the latest February buying plans were up 26 percent and 14 percent over the same period in each of the prior two years. Additionally, plans to buy a new home are up 50 percent for the month and came in stronger than February in 2013 and 2012, with increases of 200 percent and 29 percent respectively. In other words, consumers are typically more cautious in February but even so, readings on plans to purchase over the next six months are better now than last year, which started off even stronger in traffic and sales.
And remember that all housing is local. As I mentioned above that some markets actually saw better new home new home sales in January than last year. Areas with the highest improvements in new home sales compared to last year are Charles, MD; Fairfax, VA; Boulder, CO; North East Las Vegas, NV; and Ventura, CA. Markets in Maryland, Utah, Chicago, and Colorado have seen the biggest increases in traffic year-over-year in January.