Zonda’s New Home Pending Sales Index rose 0.8% month-over-month and posted a 2.4% annual increase in June. Seasonality has returned to the housing market after being notably absent in 2020. Seasonality plus sales caps and limited inventory have slowed home sales a bit but the market remains extremely strong.
A rush to build more homes
After rising off the bottom in May of last year, June 2020 was when the housing market began to kick into overdrive for some metros like Salt Lake City, Phoenix and Austin. It is in these early-to-recover markets where sales are currently experiencing the largest YoY declines as builders hurry to replenish their housing inventory.
Lifestyle markets like New York, Los Angeles and San Francisco experienced more severe COVID-19 limitations and rebounded later. The PSI in these markets is up the most year-over-year.
Due to the housing market’s immense strength in the summer months of 2020 paired with sales caps and supply limitations, year-over-year declines are to be expected in coming months.
“Housing demand is ever so slightly slower than a few months ago, largely because of seasonality. Seasonality is a normal part of the housing market that was notably absent in 2020. The seasonality in 2021 is met by some buyers pausing their home search due to high prices or frustration with the competitiveness but the overall housing market remains strong.”
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.