October New Home PSI Increases for Third Month in a Row

Nov 22, 2021

October marked the third month where the New Home Pending Sales Index increased compared to the month prior. Seasonally adjusted sales are up 3.2% month-over-month but down 6.5% compared to last year.

Sales are down from last year, but are 35.2% higher than October 2019

Pending new home sales trended above October 2020 levels in 10 of our 25 select markets, an increase from six last month. The year-over-year growth is impressive given sales caps and limited inventory are putting a lid on today’s sales.
20 of 25 of our select markets increased month-over-month, led by Washington, DC, Denver, and Los Angeles.
75% of builders reported that sales were either on track or exceeded their expectations in October.

October marks the third month where new home sales rose compared to the month prior. Our latest forecasts call for growth in home sales in 2022 over 2021, but we will be watching affordability, the trajectory of mortgage rates, supply chain challenges, and housing inventory closely.

Ali Wolf, Chief Economist, 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 15^th 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.