NEWPORT BEACH, Calif., June 21, 2021 /PRNewswire-PRWeb/ -- Today, the experts at Zonda, the housing industry's foremost advisors, released the New Home Pending Sales Index (PSI) for May 2021. The New Home PSI shows pending sales fell month-over-month but increased year-over-year across the United States. The index is a leading residential real estate indicator based on the number of new home sales contracts signed across the country.
-The New Home PSI came in at 150.0 for May, representing a 32.6% increase from May 2020.
-On a month-over-month basis, new home sales dropped from April to May.
-Housing will be increasingly difficult to decipher over the coming year as intentional sales caps, hard-to-beat year-over-year comps, and limited inventory hold back the market's full potential.
The New Home PSI is a unique measure of the housing market because it is made up of two components*: new home orders and the average sales rate per community. The new home orders component rose just 2% year-over-year in May on limited inventory and the average sales rate per community input rose 34% year-over-year – both are down month-over-month.
New home orders look at total sales and will fall based purely on limited supply. The average sales rate per community captures how well builders are selling at the open communities and strips out the supply side. Both, however, can be negatively impacted by builders intentionally capping sales, which 94% of builders reported doing in May.
"In housing, it is simple," said Ali Wolf, Zonda's chief economist. "If we had more homes to sell, more homes would be sold."
Pending new home sales trended above May 2020 levels in 23 of our 25 select markets. May was the first full month in 2020 to truly capture the turnaround in the housing market after the COVID-19 slowdown, but the strength last year varied by market. For example, markets in Texas and the Southeast rebounded quicker than in some other parts of the country and the early rebound explains why the year-over-year trend is relatively soft. San Francisco, Los Angeles, and New York, some the housing markets that were struggling to regain footing last May, posted the biggest annual jumps.
The input components give great color when trying to make sense of supply and demand. For example, the spread between the average sales rate and new home orders is highest in Riverside/San Bernardino, Los Angeles/OC, Baltimore, Las Vegas, and Tampa, which suggests a big supply and demand imbalance. The overall index is negative for Salt Lake City and Austin year-over-year, but the components tell the full story. These are two of the strongest markets in the country where inventory is the limiting factor on sales.
"Housing historically follows a seasonal pattern where spring is the most active time of the year. In 2020, the housing market remained strong even as the year progressed," said Wolf. "The next few months will be a true test of housing's underlying demand as people spend more time outside of their homes, but interest rates remain favorable."
New home data is susceptible to outsized swings in contract activity based on shifts in the number of actively selling communities. As a result, Zonda normalizes the data to ensure consistency across the index. The New Home PSI blends the cumulative sales of active or 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 and removes outliers. The index is baselined to 100 for June 2016. Today's national New Home PSI is 50% above the base level.
The next Zonda New Home PSI press release, featuring June 2021 data, will be issued on Monday, July 22, 2021 at 9:00 a.m. ET.
*Note that the PSI calculation includes weights and seasonal adjustments. The year-over-year changes related to the components removes both and are just looking at the raw index values.
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.
About Zonda
Zonda provides data-driven housing market solutions to the homebuilding and multifamily industries. 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, [email protected]
SOURCE Zonda
Share this article