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New Home Sales Will March to New Highs Soon
Jonathan Smoke / Metrostudy / April 22, 2014
The Commerce Department will report the first preliminary read on New Home Sales for March this morning. Economists are expecting an increase in March of just over 2 percent from the 440,000 annualized pace reported initially for February last month. We often poke fun at the monthly numbers, as the survey methodology behind the metrics often ends up with monthly changes that are not outside the survey confidence interval. So instead of waiting for the monthly press release, let me go out on a limb and report now that new home sales are indeed marching forward and should be looking more positive on both a month-over-month, and year-over-year basis.
Let me repeat that. The last week in the first quarter was the best week in four years—the comparison to last year is now positive.
Here are the key points from a monthly perspective to align with what the Commerce Department releases today—the traffic average for March was up 8 percent year-over-year, and flat with February. Average contracts were up 16 percent over February, so the conversion rate is improving. Average contracts for the entire month were down 7 percent relative to last year, but as indicated above, on a weekly basis the last week in March was better than the last week in March last year.
Last year started with a bang, but had no momentum as we entered spring. Add in last year’s historically mild winter, the first quarter was simply hard to beat. Momentum now favors this year winning once we get past March.
Furthermore, the improvements are widespread. More than half of markets saw improvement in March over February and year-over-year in traffic, and 60 percent of markets saw sales improving in March over February.
Traffic is up substantially compared to last year in markets like Las Vegas, D.C., and the Inland Empire. Traffic also increased more than 50 percent in March over February in Phoenix, Denver, and Chicago. Sales improved in March over February by more than 80 percent in areas of Chicago and Salt Lake City, while year-over-year sales are already 65 percent better or more in areas of Chicago, Maryland, Ventura, and Chicago.
Are we expecting crazy increases? No. There is simply not enough finished or under construction inventory to enable more than 20 percent increases in sales over last year’s rates. But demand is solid as evidenced by traffic data and consumer survey data on plans to purchase in the year ahead. Meanwhile supplies are limited in both new construction and existing homes. If not in the month of March (due to the fickle nature of the new home sales survey methodology), we should clearly see sales improving in April, and as the year progresses on both a month-over-month and year-over-year basis.