Zonda’s New Home Pending Sales Index (PSI) fell month over month for the fifth consecutive month to a reading of 125.5 in June. The June 2022 index reading represented a 7.5% decrease compared with June 2021 and, overall, the PSI is 27.9% below cycle highs, according to Zonda.
“Home sellers and home buyers are adjusting to a new reality in the housing market,” says Zonda chief economist Ali Wolf. “Home sellers are quickly understanding the days of frenzied demand are behind us and it takes an extra push to get buyers to close. Home buyers are reevaluating their finances given today’s home prices and higher interest rates. They are also weighing fears of a recession against an unrelenting desire to own a home.”
The New Home PSI includes two components: new-home orders and the average sales rate per community. In June, the new-home orders component decreased 10.5% year over year as supply remained low. According to Zonda, the combined impact of limited supply and rising rates resulted in the lowest new-home volume level since May 2020. The average sales rate per community input also full on a year-over-year basis in June, decreasing 8.2%. Both components also decreased on a month-over-month basis.
New-home orders, which look at total sales volume, have been “significantly impacted” by decreasing active project counts, according to Zonda. The average sales rate per community metric captures how well builders are selling at the open communities and strips out the supply side. The component is showing that demand is negatively responding to higher homeownership costs.
Pending new-home sales trended above June 2021 levels in five of the 25 markets analyzed by Zonda, flat compared to May. Twelve of the 25 markets increased on a month-over-month basis. Minneapolis recorded the largest month-over-month (11.8%) and year-over-year (7.4%) increases in pending new-home sales. Sacramento recorded the largest month-over-month (-13.5%) and year-over-year decreases (-41.7%) in pending new-home sales.
According to Zonda, the relationship between the percent change in the average sale rate and new-home orders can reflect an imbalance of supply and demand. Twenty of the 25 select markets posted a positive spread, indicating current levels of volume are being somewhat restrained by a lack of supply. San Antonio, Minneapolis, Sacramento, Phoenix, and Las Vegas posted negative spreads during June.
Sales pace remains up on a year-over-year basis in five of Zonda’s select markets, a decrease from six markets in May. On the volume side, only Minneapolis posted an increase compared with June 2021.
“There are a lot of what-ifs in the housing market right now,” says Wolf. “Understanding changes in and interactions between consumer confidence, home prices, housing inventory, and interest rates are more important than ever for forecasting where things go from here.”
