Many New Home Shoppers are Still Motivated to Buy Regardless of Housing Affordability Challenges
NEWPORT BEACH, Calif., June 21, 2023 /PRNewswire-PRWeb/ -- Today, the experts at Zonda, the housing industry's foremost advisors, released the New Home Market Update report for May 2023.
We are in the "life happens" housing market, one where sales are driven primarily by changes in life stage and lifestyle. Marriage, divorce, death, retirement, downsizing, having children, and relocating encourage a move despite the mortgage lock-in effect, housing affordability challenges, and economic uncertainty. In other times, investors, flippers, fear of missing out, and moving out of 'want' versus 'need' were more prevalent.
The overall demand pool is down compared to the past few years, but the lack of inventory is keeping prices firm and competition high for desirable homes. Many builders continue to benefit from the ability to compete with the resale market by offering quick move-in homes, the ability to work with the discerning buyers by offering customization on to-be-built product, and the ability to help the affordability-challenged buyer by offering mortgage rate buydowns and funds towards closing costs.
"Consumer demand for housing has defied logic throughout 2023," said Ali Wolf, Zonda's chief economist. "This is testament to the demographic tailwinds of today's market and the inherent desire for homeownership. We are continuing to watch the depth of today's buyer pool, though, given mortgage rates are at or near 7.0% again and home prices back on the rise."
May sales remained high but ticked down from April
Zonda's new home sales metric counts the number of new home contract sales each month and accounts for both cancellations and seasonality. This metric shows there were 704,853 new homes sold in May on a seasonally adjusted annualized rate. This was a decline of 1.6% from last month but an increase of 11.2% from a year ago. On a non-seasonally adjusted basis, 62,559 homes were sold, down nearly 13% year-over-year and compared to the same month in 2019.
Sales adjusted for supply hold steady
Total sales volume is influenced by both supply and demand. Zonda's New Home Pending Sales Index (PSI) was created to help account for fluctuations in supply by combining both total sales volume with the average sales rate per month per community. The May PSI came in at 139.5, representing an 11.9% rise from the same month last year. The index is currently 19.9% below cycle highs. On a month-over-month basis, seasonally adjusted new home sales increased 0.1%.
- The markets that posted the best numbers relative to last year were Salt Lake City (+44.1%), Sacramento (+41.4%), and Seattle (+33.5%).
- The metros that performed the worst year-over-year were New York (-16.4%), Philadelphia (-11.7%), and Atlanta (-6.9%).
- On a monthly basis, Salt Lake City, Sacramento, and Seattle were the best performing markets.
A continued deceleration in home price appreciation
National home prices increased year-over-year across entry-level, move-up, and high-end homes. Prices rose 2.5% for entry-level to $339,084, 2.5% for move-up to $529,945, and 6.2% for high-end homes to $920,483.
Supplementing our data with a monthly survey Zonda conducts, 60% of builders reported raising prices in May and 34% reported holding prices flat. This stands in direct contrast to the end of last year where roughly 50% of builders were lowering prices and 50% were holding prices flat.
Incentives are still common in today's housing market to help address the affordability constraints for buyers. The majority of new home communities across the country were offering incentives in May, with the most popular being mortgage rate buydowns, funds towards closing costs, and flex dollars.
Total community count is far below 2019 levels
There are currently 13,814 actively selling communities tracked by Zonda, up 0.6% from last year. On a month-over-month basis, the national figure slipped 2.5%. Total community count is 28.6% below the same month in 2019. The lack of competition from other new home communities is allowing for some upward pressure on the average sales rate per month per community. Zonda defines a community as anywhere where five or more units are for sale.
- Riverside/San Bernardino (+24.3%), Salt Lake City (+14.0%), and Los Angeles/OC (+12.0%) grew community count the most year-over-year. Community count is down 7%, 31%, and 45%, respectively, compared to 2019.
- Relative to last year, the biggest community count declines were in Tampa (-11.6%), Philadelphia (-9.1%), and New York (-8.5%). Tampa's community count is 51% below 2019 levels. Community count is down 46% and 36%, respectively, in Philadelphia and New York compared to 2019.
- Community count in 8% of our select markets rose month-over-month, 8% were flat, and 84% fell.
National quick move-ins (QMIs) totaled 23,818, up 49.6% compared to last year but 13.3% lower month-over-month. Total QMIs are 32.2% above 2019 levels. QMIs are homes that can likely be occupied within 90 days.
QMIs are selling out quicker than they can be replaced in many markets as consumers view these homes as a great alternative to the resale market given the dearth of supply.
- On a metro basis, 80% of Zonda's select markets increased QMI count year-over-year.
- The markets that grew the most year-over-year were Jacksonville (+165.6%), Phoenix (+152.0%), and Riverside/San Bernardino (+113.8%).
- The markets with the most total QMIs coincide with the largest production housing markets across the country: Dallas, Houston, and Phoenix.
- Jacksonville, Las Vegas, and Sacramento have seen the most growth in QMIs compared to the same time in 2019, up 498.8%, 195.3%, and 173.0%, respectively.
- QMIs are down the most compared to 2019 in Seattle (-65%), Atlanta (-57%), and San Francisco (-53%).
Methodology
The Zonda New Home Pending Sales Index (PSI) is built on proprietary, industry-leading data that covers 60% of the production new home market across the United States. Reported number of new home pending contracts are gathered and analyzed each month. Released on the 15th business day of each month, the New Home PSI is a leading indicator of housing demand compared to closings because it is based on the number of signed contracts at a new home community. Zonda monitors 18,000 active communities in the country and the homes tracked can be in any stage of construction.
The new home market represents roughly 10% of all transactions, allowing little movements in supply to cause outsized swings in market activity. As a result, the New Home PSI blends the cumulative sales of activity recently sold out projects with the average sales rate per community, which adjusts for fluctuations in supply. Furthermore, the New Home PSI is seasonally adjusted based on each markets' specific seasonality, removes outliers, and uses June 2016 as the base month. The foundation of the index is a monthly survey conducted by Zonda. It is necessary to monitor both new and existing home sales to establish an accurate picture of the relative health of the residential real estate market.
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About Zonda
Zonda provides data-driven housing market solutions to the homebuilding industry. From builders to building product manufacturers, mortgage clients, and multifamily executives, we work hand-in-hand with our customers to streamline access to housing data to empower smarter decisions. As a leading brand in residential construction, our mission is to advance the home building industry, because we believe better homes mean better lives and stronger communities. Together, we are building the future of housing.
Media Contact
Valerie Sheets, Zonda, 949-294-9557, vsheets@zondahome.com
SOURCE Zonda
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