New Home PSI: Home sales remain 11% above pre-pandemic peak

Aug 20, 2021

Zonda’s New Home Pending Sales Index rose 0.3% month-over-month but dropped 13.2% year-over-year. The year-over-year number is a bit misleading because of the strength in the housing market last year. A better frame of references is the two year change. Zonda’s PSI is up 21.8% compared to July 2019.

The slowdown in home sales was expected

Housing’s red-hot stretch started in June 2020 and continued that upward trajectory in July 2020, especially in metros like Salt Lake City, Raleigh and Phoenix. These markets are now experiencing the largest year-over-year declines.
The gap between the average sales rate per community and total new home orders can shed light on the housing supply and demand imbalance. Twenty-four of our select twenty-five select markets posted a positive spread, indicating volume would rise by simply increasing supply assuming today’s buyer interest is unchanged.
Zonda believes that home sales data will continue to be negative on a year-over-year basis throughout the balance of 2021 given the tough comps.

“The housing market is slower than it was a few months ago but the market is far from slow. Supply constraints are a big reason home sales have slowed but buyers have played a role as well. Distractions that come with this time of year combined with some buyers fed up with the hot housing market have brought demand levels back down to earth.”

Ali Wolf, Chief Economist at Zonda Economics

Methodology

The Zonda New Home Pending Sales Index (PSI) is built on proprietary, industry-leading data that covers 60% of the production new home market across the United States. Reported number of new home pending contracts are gathered and analyzed each month. Released on the 15^th business day of each month, the New Home PSI is a leading indicator of housing demand compared to closings because it is based on the number of signed contracts at a new home community. Zonda monitors 18,000 active communities in the country and the homes tracked can be in any stage of construction.

The new home market represents roughly 10% of all transactions, allowing little movements in supply to cause outsized swings in market activity. As a result, the New Home PSI blends the cumulative sales of activity recently sold out projects with the average sales rate per community, which adjusts for fluctuations in supply. Furthermore, the New Home PSI is seasonally adjusted based on each markets’ specific seasonality, removes outliers, and uses June 2016 as the base month. The foundation of the index is a monthly survey conducted by Zonda. It is necessary to monitor both new and existing home sales to establish an accurate picture of the relative health of the residential real estate market.