Consumers continued to show up to new home communities and sign contracts in May at a strong pace. Zonda’s New Home Pending Sales Index posted a 32.6% increase from May of last year. The index is off from cycle highs as tight inventory continues to constrain the full market potential.
Buyers continue to compete for limited inventory
May was the first full month in 2020 to truly capture the turnaround in the housing market after the COVID slowdown, but the strength last year varied by market. For example, San Francisco, Los Angeles, and New York, some the housing markets that were struggling to regain footing last May, posted the biggest annual jumps.
The overall index is negative for Salt Lake City and Austin year-over-year, but the dips are almost solely supply related.
Mortgage rates are hovering around 3%. While they are up from January lows of 2.65%, cheap borrowing costs remain a huge tailwind for the housing market.
“Housing historically follows a seasonal pattern where spring is the most active time of the year. In 2020, the housing market remained strong even as the year progressed. The next few months will be a true test of housing’s underlying demand as people spend more time outside of their homes, but interest rates remain favorable.”
Ali Wolf, Chief Economist at Zonda Economics
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.