New home sales down for fifth consecutive month in June

“There are a lot of what-if scenarios in the housing market right now. Understanding the shifts and interactions between consumer confidence, home prices, housing inventories and interest rates is more important than ever in forecasting where things are going from here. —Ali Wolf

Today experts at Zonda, the leading advisers to the housing industry, released the New Home Pending Sales Index (PSI) for June 2022. The New Home PSI shows pending sales have fallen month-on-month and remained down year-on-year. The index is a leading indicator of residential real estate based on the number of new home sales contracts signed across the country.

  • The New Home PSI came in at 125.5 for June, down 7.5% from June 2021. The index is 27.9% below cycle highs.
  • Month-over-month, seasonally adjusted new home sales fell 0.2% from May to June, posting the fifth consecutive month-over-month decline.
  • The combined impact of limited supply and rising rates continues to be felt in the market, with the volume of new homes falling to its lowest level since May 2020.

The New Home PSI is a unique measure of the housing market because it is made up of two components*: new home orders and the average sales rate per community. The new home orders component fell 10.5% year-over-year in June as supply remained weak. The average sales rate per community input also fell, decreasing by 8.2% year-on-year.

New home orders, which take into account total sales volume, were significantly affected by the steady decline in the number of active projects. In other words, sales are down partly because inventory is scarce. The average sale rate per community reflects the quality of builder sales in open communities and excludes the supply side. The average sale rate component shows that demand reacts negatively to rising homeownership costs. The volume of new home orders and the average sale rate both fell on a monthly basis.

“Home sellers and buyers are adjusting to a new reality in the housing market,” said Ali Wolf, Zonda’s chief economist. “Home sellers are quickly realizing that the days of frenzied demand are behind us and it takes extra effort to get buyers to close. Home buyers are reassessing their finances given today’s home prices and higher interest rates.They also balance fears of a recession against an unrelenting desire to own a home.

Pending new home sales exceeded June 2021 levels in five of our 25 select markets, up from five last month. 12 of 25 of our selected markets rose month over month. Minneapolis rose the most on a monthly and year-over-year basis, rising 11.8% and 7.4%, respectively.

The relationship between the percentage change in the average sale rate and new home orders may reflect an imbalance between supply and demand. 20 of the 25 selected markets showed a positive spread, indicating that current volume levels are somewhat constrained by the lack of supply. The pace of sales remains up year-over-year in five of Zonda’s select markets, down from six last month. On the volume side, only one metro, Minneapolis, showed an increase over last year, stable compared to last month.

“There’s a lot of speculation going on in the housing market right now,” Wolf said. “Understanding the shifts and interactions between consumer confidence, house prices, housing stock and interest rates is more important than ever to forecasting where things are going.”

New housing data is sensitive to outsized fluctuations in contract activity based on changes in the number of actively selling communities. As a result, Zonda normalizes the data to ensure index consistency. The New Home PSI combines the cumulative sales of active or recently exhausted projects with the average sale rate per community, which takes into account fluctuations in supply. Additionally, the New Home PSI is seasonally adjusted based on the specific seasonality of each market and removes outliers. The index is based on 100 for June 2016. Today’s National New Home PSI is 25.5% above the baseline.

The next Zonda New Home PSI press release, containing July 2022 data, will be released on Tuesday, August 19, 2022 at 9:00 a.m. ET.

*Note that the PSI calculation includes weightings and seasonal adjustments. Year-over-year component-related changes remove both and only look at the raw index values.

Methodology

The Zonda New Home Pending Sales Index (PSI) is based on industry-leading proprietary data that covers 60% of the new home production market in the United States. The reported number of new pending house contracts is collected and analyzed monthly. Released on the 15th working day of each month, the New Home PSI is a leading indicator of housing demand versus closures, as it is based on the number of contracts signed in a new home community. Zonda monitors 18,000 active communities nationwide, and homes tracked can be at any stage of construction.

The new home market accounts for about 10% of all transactions, allowing small movements in supply to cause outsized fluctuations in market activity. Accordingly, the New Home PSI mixes the cumulative sales of recently exhausted projects with the average sale rate per community, which takes into account fluctuations in supply. Additionally, the New Home PSI is seasonally adjusted for each market’s specific seasonality, removes outliers, and uses June 2016 as the base month. The basis of the index is a monthly survey conducted by Zonda. Monitoring both new and existing home sales is necessary to build an accurate picture of the relative health of the residential real estate market.

About Zonda

Zonda provides data-driven housing market solutions to the residential and multifamily construction industries. From builders to building product manufacturers, mortgage customers and multi-family executives, we work hand-in-hand with our customers to streamline access to housing data to enable smarter decisions. As the leading brand in homebuilding, our mission is to advance the homebuilding industry because we believe better homes mean better lives and stronger communities. Together, we are building the future of housing.

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