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Recent Data Suggest No Negative Headlines in Coming Weeks for Housing
Jonathan Smoke / Metrostudy / December 3, 2013
With the impact of the government shutdown in October, we have not had the usual data in October and November to review residential construction activity and new home sales. Earlier this week, Brad Hunter and I reviewed with some members of the media the most recent Metrostudy data across observed closings, builder reported traffic and sales, and permits. My conclusion remains that we are seeing some seasonal pullback and pockets of more than seasonal decline in sales, but overall activity appears to be consistent with growth, and certainly there is no call for concern regarding the beginning of 2014.
The Commerce Department releases September data on starts and permits next week, but I already have more detailed insight into what happened. Based on Metrostudy’s full third quarter observations, we know that starts were up again in the third quarter—15% over the second quarter and 37% year over year.
There was substantial variation at the market level. Some markets showed stronger quarter-over-quarter increases, and some showed a pullback in the third quarter. Stronger gainers included Nashville, Charlotte, Salt Lake City, and Raleigh-Durham. Decliners were mainly in the Florida or west coast, such as South Florida, Sarasota, Reno, Las Vegas, and Sacramento.
Turning to less comprehensive but more recent data, we can look at what builders are reporting to Metrostudy regarding their traffic. Looking at traffic unit averages per community, traffic was up 36% year over year in October and up 3% over September. Reported traffic has been on the rise for two straight months and overall it remains much higher than recent years and showing little sign of a normal fall decline.
Some areas are seeing incredible gains year over year like Southeast Valley and Central Valley in AZ, Lake, IN, Howard, MD, and Stafford, VA. Stafford is also the leader in month to month traffic gains.
Contracts were a different story. Year over year contracts were down 9% (the fall of 2012 made for a tough comparison as it showed little normal seasonal decline pattern). Contracts were also down 12% over September. With higher traffic but lower sales, builders’ conversion rates have been declining as well. This sales data is not seasonally adjusted, however, and this is the time of year when there is always a decline in new contracts.
Yet not all areas saw declines in contracts. Year over year areas with more than double the contracts of last year included Coachella Valley, CA, Charles, MD, Will, IL, DuPage, IL, and Broomfield, CO. And several areas saw substantial month-to-month gains in contracts such as Calvert, MD, North East, NV, Larimer, CO, Lake, IN, and Weld, CO.
Finally, we gather detailed permits from jurisdictions around the country, so this also serves as a good indicator of what the Census data should reflect, especially for September. In Q3, permit volumes continued on an upward trend with 11% growth over Q2. It was the seventh consecutive quarter with an increase in permits.
The month of September was down 12% compared to August, but such a decline is typical of the fall relative to the summer months each year. And just like in our other data, there are significant variances at the market level. Month to month market gainers in permit activity included Santa Rosa-Petaluma, CA, Santa Fe, NM, Dunn, NC, Grand Junction, CO, and Indianapolis-Carmel, IN.
All of this data points me to believe that we are not likely to see a clear, statistically significant decline in new home sales, permits, or starts activity in the upcoming Commerce Department’s catch-up reports next week and in December. Some areas are seeing evidence of sales pullbacks but that might be a reflection of stronger activity earlier in the year having effectively pulled forward some sales. Seasonally, we are in the weakest period of the year for sales, yet traffic remains abnormally strong and well above recent years. And as we saw in the latest NAHB numbers, builders remain more optimistic than not.
I personally will be more focused on what the consumer confidence read on November says about any lingering impacts of the government shutdown. I predict a surprise to the upside.
If so, that will help us end the holiday season with positive momentum. Let’s then hope Santa brings sanity to Congress and we get through January with no dark clouds hanging over consumers as we enter the all-important spring selling season. Our healthy growth forecasts for 2014 will depend on the year starting off well.