Zonda’s New Home Pending Sales Index (PSI) posted a reading of 135.4 in May, a 6.4% decrease from May 2021 and a 2.3% decrease compared with April. The decline from April to May marks the fourth consecutive month-over-month drop for the PSI. The May PSI is 22.3% below cycle highs, according to Zonda.
“The housing market has historically been an interest-rate-sensitive industry, and today is no different,” says Zonda chief economist Ali Wolf. “The average monthly mortgage payment is up over 40% since the end of last year, driven by higher mortgage rates and higher home prices. This affordability shock is pushing many potential home buyers out of the market as qualifying for a mortgage has become increasingly difficult.”
The New Home PSI includes two components: new-home orders and the average sales rate per community. The new-home orders component of the index decreased 10.8% year over year in May, and the average sales rate per community decreased 7.5% compared with May 2021. Zonda says the combined impact of limited supply and rising rates caused new-home volume to fall to its lowest level since July 2021.
New-home orders, which look at total sales volume, have been impacted by decreasing active project counts, according to Zonda. The average sales rate per community component—which captures how well builders are selling at the open communities and strips out the supply side—shows demand is negatively responding to higher homeownership costs.
Pending new-home sales trended above May 2021 levels in five of Zonda’s 25 select markets, down from nine in April. Nine of the 25 markets increased month over month, according to Zonda. Austin, Texas, posted the highest year-over-year increase in pending new-home sales, while San Francisco posted the largest decrease compared with May 2021. San Francisco also posted the largest month-over-month growth.
Zonda says 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 Zonda’s 25 select markets posted a positive spread, indicating current levels of volume are being restrained by lack of supply. Phoenix; Sacramento, California; San Antonio; Las Vegas; and Minneapolis posted negative spreads.
Sales pace remains up year over year in six of Zonda’s select markets, a decrease from 13 last month. On the volume side, only Raleigh, North Carolina, posted an increase compared with last year, a decrease from three markets in April.
“April was the inflection point for the housing market, and May kept up that trend,” Wolf says. “Builders are still facing supply and labor headaches on the supply side at the same time the demand equation has shifted down in response to higher housing costs.”
