Zonda’s New Home Pending Sales Index (PSI) posted a reading of 150.4 for April, representing a 2% increase from March and a 3.1% decrease from April 2021. The April reading is 13.6% below cycle highs.
“Changes to Federal Reserve policy and elevated levels of inflation act as headwinds to an otherwise strong housing landscape via the impact on the mortgage market,” says Ali Wolf, Zonda’s chief economist. “Mortgage rates averaged roughly 5% in the month of April. The higher mortgage rates have tested consumer confidence and ability to pay, as mortgage rates alone have pushed the monthly cost of owning up 30% since the start of the year.”
Of the New Home PSI’s two components, new-home orders fell 9.6% year over year in April as supply continued to trickle lower. New-home orders, which look at total sales volume, have been significantly impacted with ever-decreasing active project count.
The average sales rate per community input also fell, decreasing 3.5% year over year. This component captures how well builders are selling at their open communities and strips out the supply side. In today’s market, however, even the sales rate number isn’t capturing the full demand environment because over 80% of builders are capping sales.
Pending new-home sales trended above April 2021 levels in nine of the 25 select markets, up from five last month and led by Denver, Washington, D.C., and Austin, Texas. Fourteen of the 25 select markets increased month over month, including Cincinnati, Salt Lake City, and Austin, with the largest month-over-month increases. Denver increased the most on a year-over-year basis, rising 16.1%, while Cincinnati grew the most month over month, increasing 11.8%.
The relationship between the percent change in the average sales rate and new-home orders can reflect an imbalance of supply and demand. All 25 select markets posted a positive spread, indicating current levels of volume are being restrained by lack of supply.
Sales pace remains up year over year in 13 of Zonda’s select markets, an increase from seven last month. On the volume side, three metros posted an increase compared with last year, up from zero last month.
“While the PSI captured a month-over-month increase, there are early signs that higher mortgage rates are cooling the housing market,” adds Wolf. “Incentives are increasingly available to new-home shoppers and builders are reporting a modest increase in buyer cancellations.”
