Market Remains Strong Despite Slight Slowdown in Sales and Traffic
May 16, 2024
In the latest HomeSphere/BTIG State of the Industry Report, builder sales and traffic trends remained solid, but there was a slight slowdown compared to March, while pricing firmed up.
Builders reported a slight dip in sales and traffic indicators compared to the previous month, but it was not as severe as the same month in 2023. Thirty-five percent of builders reported year-over-year increases, down from 41% last month and up from 31% in April 2023. Thirty-eight percent of builders reported an increase in year-over-year traffic, down from 46% last month and up from 34% in April 2023. Overall, while there's been a softening compared to the previous month, these are still the second-best readings of the year and better than April 2023.
In addition, performance relative to internal expectations has weakened compared to March, likely influenced by increased builder expectations during the early spring selling season and significant interest rate volatility in April. Thirty percent of respondents saw sales as better than expected, down from a positive spread of +22 last month. Twenty-eight percent of builders saw traffic as better than expected, down from 37% last month.
The decrease in the positive spread indicates that while sales and traffic were still generally better than expected, the margin has narrowed compared to the previous month. This narrowing could be attributed to heightened expectations during the spring selling season and significant interest rate fluctuations during April, as reported by Freddie Mac.
Pricing activity became more aggressive in April compared to March, with a notable increase in base prices. Forty percent of builders reported raising either "most/all" or "some" base prices, up from 29% last month, marking the highest percentage since June 2022. Comparatively, incentive activity remained relatively flat, suggesting builders are turning to a more aggressive pricing strategy in response to market conditions.
The latest NAHB/Wells Fargo Housing Market Index (released May 15, 2024) came in at 45.
Highlights from the latest State of the Industry Report
Sales and traffic. April sales and traffic indicators softened slightly compared to March. Thirty-five percent of respondents reported yr/yr increases in sales orders per community vs. 41% last month and 31% in April 2023. Twenty-four percent saw a yr/yr decrease in orders vs. 22% last month and 34% for the same month in 2023. Thirty-eight percent of builders reported an increase in yr/yr traffic at communities and 25% saw a decline vs. 46% and 23%, respectively, last month and 34% and 27%, respectively, in April 2023.
Sales and traffic relative to expectations. Performance relative to internal expectations was also weaker than March. Thirty percent of respondents saw sales as better than expected; 20% saw sales as worse than expected — a positive spread of +10. Last month, this spread was +22. Twenty-eight percent of builders saw traffic as better than expected, while 20% of builders saw traffic as worse than expected (positive spread of +8). This compares to 37% and 17%, respectively, last month (positive spread of +20). We believe early spring selling season strength has likely increased builder expectations of sales/traffic performance, while interest rate volatility during April was significant — Freddie Mac (FMCC, NR) reported a 43 bps rise in the 30-year fixed mortgage rate between the weeks of 3/28 and 5/2.
Pricing and incentives. Pricing activity was more aggressive in April than in March; incentive activity remained flattish. Forty percent of builders reported raising either "most/ all" or "some" base prices vs. 29% last month. This is the highest percentage our survey has reported since June 2022. Seven percent lowered "most/all" or "some" base prices compared to 8% in March; this was the lowest read since April 2022. Twenty-one percent reported increasing "most/all" or "some" incentives vs. 19% last month, and 6% reported decreasing "most/all" or "some" incentives vs. 5% last month.
HomeSphere/BTIG State of the Industry Report
HomeSphere partners with the global investment bank BTIG to create a monthly report to provide our builders and manufacturers with exclusive and timely insights about the market.
To compile the report, we survey HomeSphere’s 2,700+ regional and local home builders about sales, traffic, pricing, labor costs and other key industry metrics.
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