Zonda’s New Home Pending Sales Index (PSI) reported a reading of 156 for February, a 7.6% decrease from February 2021. The reading indicates the housing market is below peak activity seen in January 2021, but is 25.2% higher than its pre-pandemic reading in February 2020. The February reading was 10.4% below the recent peak as 90% of builders intentionally slowed sales to better align with production capacity in February.
“February marked another month defined by both home price and mortgage rate urgency,” says Ali Wolf, Zonda’s chief economist. “Home shoppers are still actively looking, but the supply-side is replete with challenges, which is limiting the total number of new-home sales.”
The New Home PSI includes two components: new-home orders and the average sales rate per community. The new-home orders component fell 16.5% year over year in February as supply trickled lower while the average sales rate per community input decreased 7.1% year over year.
New-home orders, which looks at total sales volume, has been impacted with ever-decreasing active project counts, according to Zonda. Since many builders are intentionally capping sales, the average sales rate per community number is not capturing the full demand environment. On a month-over-month basis, the new-home order volume ticked lower while average sales pace rose.
Pending new-home sales trended above February 2021 levels in nine of Zonda’s 25 selected markets, an increase from three in January. Ten of the 25 selected markets increased month over month. San Antonio registered both the largest year-over-year (16%) and month-over-month (9.9%) increases.
The relationship between the percent change in the average sale rate and new-home orders can reflect an imbalance of supply and demand. Twenty four of the 25 selected markets analyzed by Zonda posted a positive spread, indicating current levels of volume are being restrained by lack of supply. Phoenix was the lone metro analyzed to post a negative spread.
Sales pace remains up year over year in 10 of Zonda’s select markets, an increase from five last month. On the volume side, three metros, New York, San Antonio, and Sacramento, posted an increase compared to last year, up from zero the prior month.
“For now, consumers are motivated by mortgage rates rather than deterred, but we need to recognize that won’t always be the case,” says Wolf. “Now is the time to be planning and strategizing around affordability constraints.”
