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New Home PSI: New home sales continues its stride in April

May 21, 2021

We need a lot of different data to make sense of today’s housing market. For example, sales are up 78.6% year-over-year off a weak comp, sales are flat month-over-month in the face of sales caps, and sales are 49.5% higher compared to two years ago, a time when the housing market was completely different. The growth in the average sales rate per community continues to outpace the growth in total new home orders as fewer communities and units for sale hold back the market’s full potential.  

Home sales are holding high

  • The best new home markets were the ones hardest hit during the brief but sharp housing slowdown last year: Las Vegas, San Francisco, and Riverside/San Bernardino.
  • Given the year-over-year comparisons are dependent on how much local housing markets slowed during April of 2020, the month-over-month change is a better gauge for now. Contract sales in Seattle, Austin, and Cincinnati posted the best change on a month-over-month basis.
  • The spread between the average sale rate and new home orders, the two inputs components in the PSI, is highest in Riverside/San Bernardino, Los Angeles/OC, Baltimore, Las Vegas, and Tampa, suggesting a big supply and demand imbalance. This list includes some of the hottest markets in the country as well as those that are facing a particularly pronounced lot shortage.

“Affordability is and will remain the top risk for the housing market. Buyers are eager to jump into today’s markets, but with limited inventory, prices are skyrocketing, and competition is fierce. We are anticipating a bottom in inventory in the coming months, which should help normalize the market.”

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 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.

 

 

 

Ali Wolf

Chief Economist

Ali Wolf

Chief Economist

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