The New Home PSI slipped again in March both month-over-month and year-over-year. Sales dropped on low inventory (expected to rise gradually over time), sales caps (expected to be less commonplace later in the year), and rising mortgage rates (expected to remained elevated for the near future).
Zonda’s New Home Pending Sales Index (PSI) for March 2022 shows pending sales slipped both month-over-month and year-over-year. The index is a leading residential real estate indicator based on the number of new home sales contracts signed across the country.
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 16.4% year-over-year in March as supply continued to trickle lower. The average sales rate per community input also fell, decreasing 10.0% year-over-year.
New home orders, which look at total sales volume, have been significantly impacted with ever-decreasing active project count. In other words, sales are down primarily because inventory is scarce. The average sales rate per community captures how well builders are selling at the open communities and strips out the supply side. In today’s market, however, even the sales rate number isn’t capturing the full demand environment because 90% of builders are still capping sales. The new home order volume ticked lower while average sales pace again rose month-over-month on a non-seasonally adjusted basis and is at the highest level since April 2021.
“Mortgage rates averaged 4.17% in March and buyers have been reacting differently depending on their financial situation and motivation behind wanting to buy a home,” said Ali Wolf, Zonda’s chief economist. “Some buyers have been motivated by the rising interest rates to lock in their largest monthly cost, especially in a high inflation environment. Others have been deterred either by fear or financial force.”
Pending new home sales trended above March 2021 levels in just five of our twenty-five select markets, down from nine last month. Five of twenty-five of our select markets increased month-over-month. Riverside and New York both registered double-digit year-over-year gains, increasing 10.9% and 10.7%, respectively.
The relationship between the percent change in the average sale rate and new home orders can reflect an imbalance of supply and demand. Twenty-three of twenty-five select markets posted a positive spread, indicating current levels of volume are being restrained by lack of supply. Sales pace remains up year-over-year in seven of Zonda’s select markets, a decrease from ten last month. On the volume side, zero metros posted an increase compared to last year, down from three last month.
New home data is susceptible to outsized swings in contract activity based on shifts in the number of actively selling communities. As a result, Zonda normalizes the data to ensure consistency across the index. The New Home PSI blends the cumulative sales of active or 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 and removes outliers. The index is baselined to 100 for June 2016. Today’s national New Home PSI is 47.1% above the base level.
The next Zonda New Home PSI press release, featuring April 2022 data, will be issued on Friday, May 20, 2022 at 9:00 a.m. ET.
*Note that the PSI calculation includes weights and seasonal adjustments. The year-over-year changes related to the components removes both and are just looking at the raw index values.
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 15th 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.
Chief Economist