The Zonda New Home Pending Sales Index (PSI) posted a reading of 147.1 in March, representing a 9.8% decrease from March 2021 and a 6% decrease from February. The March reading is 15.6% below cycle highs, according to Zonda.
“Mortgage rates averaged 4.17% in March, and buyers have been reacting differently depending on their financial situation and motivation behind wanting to buy a home,” says Zonda chief economist Ali Wolf. “Some buyers have been motivated by the rising interest rates to lock in their largest monthly cost, especially in a high inflation environment. Others have been deterred either by fear of financial force.”
The New Home PSI includes two components: new-home orders and the average sales rate per community. The new-home orders component fell 16.4% on a year-over-year basis in March as supply continued to trickle lower, while the average sales rate per community input decreased 10% year over year. On a month-over-month basis, the new-home order volume ticked lower while the average sales pace rose. According to Zonda, the average sales pace is at its highest level since April 2021.
New-home orders, which look at total sales volume, have been impacted by ever-decreasing active project counts. The average sales rate per community captures how well builders are selling at the open communities and strips out the sales side. Zonda says the sales rate number in today’s market does not capture the full demand environment because 90% of builders are still capping sales.
Pending new-home sales trended above March 2021 levels in five of Zonda’s selected 25 markets (Riverside, California; New York; Austin, Texas; Washington, D.C.; and Salt Lake City), down from nine in February. Five of the 25 selected markets increased on a month-over-month basis. Riverside and New York both registered double-digit year-over-year gains, increasing 10.9% and 10.7%, respectively.
The relationship between the percent change in the average sales rate and new-home orders can reflect an imbalance of supply and demand. Twenty-three of the 25 selected markets posted a positive spread, indicating current levels of volume are being restrained by lack of supply. Sacramento, California, and Phoenix posted negative spreads.
Sales pace remains up on a year-over-year basis in seven of Zonda’s select markets, a decrease from 10 in February. On the volume side, no metros posted an increase compared with last year, down from three last month.
“The housing market is an interest rate sensitive industry so it is natural to expect that higher borrowing costs will impact home buyer demand,” Wolf says. “Rate buydowns, funds toward closing costs, education on down payments, and information on the values of homeownership will go a long way with today’s shoppers.”
