Zonda Provides New Home Market Update

Many home shoppers have accepted the reality of today – mortgage rates aren’t heading back to 3% any time soon. As such, financially secure consumers who are looking to move are still active in the housing market. This cohort contributed to the 61% of builders surveyed by Zonda in April that felt demand was either on track with or stronger than they expected.

There are, however, 39% of builders that reported demand was slower than expected. This disparity reflects the struggles some consumers face with affordability. Qualifying for a mortgage and managing monthly payments have become hurdles for a portion of the market, impacting demand for housing. Our data captures these mixed results with the April Zonda Pending Sales Index coming in essentially flat month-over-month.

“Many house hunters have found the builder advantage undeniable,” said Ali Wolf, chief economist for Zonda. “Buyers get the benefit of a brand-new home with lower maintenance needs, improved energy efficiency, and in many cases, either financial or design incentives. The incentives, in particular, can make new homes even more attractive to budget-conscious buyers trying to purchase today.”

Strong spring selling season for new home builders

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 753,258 new homes sold in April on a seasonally adjusted annualized rate. This was a gain of 3.1% from last month and an increase of 4.8% from a year ago. On a non-seasonally adjusted basis, 67,621 homes were sold, 6.7% higher than last year and 38.8% above the same month in 2019.

The New Home PSI leveled out month-over-month

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 April PSI came in at 147.8, up 5.7% year-over-year. On a month-over-month basis, seasonally adjusted new home sales increased 0.5%. The index is currently 15.1% below cycle highs.

• The markets that posted the best numbers relative to last year were Philadelphia (+33.1%), Denver (+22.8%), and Atlanta (+19.1%).
• Sales were down year-over-year in eight of our select markets, led by Orlando, Jacksonville, and Dallas.
• On a monthly basis, Salt Lake City, Denver, and Seattle were the best-performing markets. Salt Lake City increased 15.1% relative to last month.

The national ZMR was slightly overperforming in April

In order to add further context to sales, Zonda created the Zonda Market Ranking (ZMR). The ZMR accounts for both sales pace and volume, is seasonally adjusted, and is taken as a percentage relative to a baseline market average. Based on the percentage above or below baseline, markets are bucketed into performance groups ranging from significantly underperforming to significantly overperforming relative to historical activity.

The map below shows a snapshot of top production markets by region. Subscribers of the National Outlook report can access the full list in Zonda’s portal.

• The National ZMR index came in at 118.1 in April, indicating a slightly overperforming market, ranking in-line with last month and better than last year.
• Zonda’s snapshot markets were split between 80% overperforming and 20% average in April. Among Zonda’s top 50 major markets, 76% were overperforming, 14% were average, and 10% were underperforming.
• Importantly, the ZMR does not account for what it takes to sell a home. For example, securing a sale might still feel difficult in a “significantly overperforming” market, but if incentives offered result in a sale, we count the sale.

Mixed pricing picture

Prices fell 2.2% for entry-level to $331,278 and 1.2% for move-up to $520,793 but rose 0.2% for high-end homes to $911,491. The declines in the entry-level and move-up markets represent smaller home sizes, differing locations, and select price drops.

Supplementing our data with a monthly survey Zonda conducts, 54% of builders reported raising prices in April, up from 51% in March. Further, 39% reported holding prices flat, down from 44% last month.

Community count levels are down 25% YOY

There are currently 14,544 actively selling communities tracked by Zonda, up 2.7% from last year. On a month-over-month basis, the national figure slipped 3.1%. Total community count is 24.8% below the same month in 2019. The lack of competition from other new home communities has allowed 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.

• Dallas (+13.9%), Austin (+12.9%), and Salt Lake City (+9.4%) grew community count the most year-over-year. Relative to 2019, community count was down 11.6%, 11.5%, and 21.8%, respectively.
• Relative to last year, the biggest community count declines were in San Francisco (-21.3%), Philadelphia (-17.1%), and Seattle (-14.5%).
• Community count in 8% of our select markets rose month-over-month, 0% were flat, and 92% fell.

National quick move-ins (QMIs) totaled 27,952, up 1.5% compared to last year but 2.8% lower month-over-month. Total QMIs are 46.3% above 2019 levels. QMIs are homes that can likely be occupied within 90 days.

For many consumers, QMIs provide a great option given the lack of resale supply. As a result, some builders have pivoted to a more spec-heavy strategy to help capture today’s buyers.