New-home sales slowed in October, reflecting growing uncertainty in the overall economy and housing market. According to the Zonda New Home Market Update, there were approximately 467,082 new-home sales on a seasonally adjusted annual basis in October, representing a 34.1% decline on a year-over-year basis.
The number of total new-home sales in the month—a new metric introduced by Zonda—represents the count of new-home contract sales each month and accounts for both cancellations and seasonality, according to Zonda. On a month-over-month basis, the seasonally adjusted annualized rate of new-home sales declined 16.1%. On a non-seasonally adjusted basis, 34,548 homes were sold in October, 37% lower than last year and 30% below the same month in 2019.
To combat market uncertainty, more builders are using both price cuts and incentives to encourage prospective buyers to move from the sidelines. According to Zonda, mortgage rate incentives are “proving to be the most effective,” as they alleviate the burden of soaring monthly payments. Due to the rapid increase in mortgage rates and continued home price appreciation, average monthly payments have increased more than 70% since the beginning of the year.
“There are many forces working against the housing market right now,” says Zonda chief economist Ali Wolf. “With the holidays approaching, this is traditionally a slower time for the housing market, but layer in higher interest rates and economic uncertainty, and the resulting impact is that home sales are stalling out. It takes good marketing, great salespeople, excellent product, the right price point, and a lot of patience to be successful in today’s market.”
According to Zonda, the volume of sales decreased during October due to both supply and demand conditions. Zonda’s New Home Pending Sales Index (PSI) registered a reading of 104.0 in October, a 35.4% decline from the same month last year and 40.3% below cycle highs. The PSI accounts for fluctuations in supply by combining both total sales volume and the average sales rate per month per community.
In October, the PSI was up in just one analyzed market, Baltimore, on a year-over-year basis. Phoenix (-70.8%), Denver (-67%), and Sacramento, California (-62.8%) performed the worst on a year-over-year basis. Sacramento, while one of the slowest markets year over year, posted a significant increase on a month-over-month basis in October (+19%) as builders cut prices and used incentives to drive interest. Baltimore (+5.6%) and Minneapolis (+4.2%) rounded out the top three of the best month-over-month performers.
As national sales slowed, home prices increased nationally on a year-over-year basis across entry-level, move-up, and high-end homes, according to Zonda. Prices increased 13% year over year to $342,193 for entry-level homes, 11.1% to $530,392 for move-up homes, and 8.9% to $906,990 for high-end homes. For the second consecutive month, high-end homes grew at a cycle high of 9% year over year, according to Zonda.
Approximately 40% of respondents to Zonda’s monthly survey reported lowering prices on a month-over-month basis in October, and incentives are increasingly common given the slower sales rates. Approximately 54.8% of active projects are offering to-be-built incentives, an increase from September, and the average incentive dollar amount is $11,341, or 2.3% of the list price.
The number of actively selling communities tracked by Zonda decreased 8.3% from October 2021 to 13,417 in October 2022. The figure is 1.4% lower than September levels, while the total community count is 30.2% below the same month in 2019. Las Vegas (+8.1%), Phoenix (+7.1%), and San Antonio (+5.3%) grew community count the most year over year, while community count fell the most in Baltimore (-25.0%), Atlanta (-22.7%), and Seattle (-21.4%) relative to last year. Overall, community count fell in 80% of the select markets analyzed by Zonda.
National quick move-ins (QMIs), homes that can be occupied within 90 days, totaled 31,947 in October, up 156% compared with October 2021 and 1.8% higher than September. Total QMIs are 41.9% above 2019 levels, according to Zonda. Each of Zonda’s 25 select markets experienced increased QMI count on a year-over-year basis, with the largest increases occurring in Cincinnati (+768%), Tampa, Florida (+660.6%), and Raleigh, North Carolina (+627.7%). Salt Lake City; Jacksonville, Florida; and Las Vegas have experienced the most growth in QMIs compared with the same time in 2019, up 234.9%, 187.7%, and 150%, respectively.
