New home trends are going to get hard to decipher over the coming months. For example, the New Home Pending Sales Index posted a 50.0% increase year-over-year, but the growth rate is based off the weak March 2020 levels. In addition, the index dropped 6.1% month-over-month, but the drop is largely a function of sales caps and limited inventory.
A wild ride for data lovers
The best new home markets in March were Denver, Philadelphia, and Raleigh. Given the year-over-year comparisons are dependent on how much local housing markets slowed during March of 2020, the month-over-month is a better gauge this month. Contract sales in San Francisco, Sacramento, and Las Vegas posted the highest change on a month-over-month basis.
Seattle was the only market to drop on a year-over-year basis in March. There are two factors driving the decline. First, the Seattle housing market was surprisingly strong in March 2020 when home sales in other markets were slumping. Second, new home inventory in Seattle this year is particularly tight, limiting the market’s full potential for sales.
The New Home PSI is made up of total new home orders and the average sales rate per community. These inputs give great color when trying to make sense of supply and demand. For example, new home orders are down year-over-year in Washington, DC, Austin, Seattle, and Salt Lake City. In these markets, builders that have inventory to sell are doing great but overall transactions are down on tight supply.
This time last year, people were worried about the housing slowdown. The ensuing rebound was sharp and has proved to have staying power. Increased savings, the ability to work from anywhere, and low interest rates are powerful forces for homebuyers of all different ages even in a challenging market.
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.
The data provided in this release are for use only by the primary recipient or the primary recipient’s publication or broadcast. This data may not be modified, resold, republished or licensed to any other source, including publications and sources owned by the primary recipient’s parent company without prior written permission from Zonda.