Zonda's Latest Housing Update Contains a Few Surprises

New home sales experienced modest drop in September

Mortgage rates averaged 7.2% for the month of September, up from an average of 7.1% in August and 6.3% to start the year. Despite the increase, Zonda’s count of September new home sales captures only a modest drop month-over-month. We do, however, anticipate the cooldown to be more pronounced in future data releases given mortgage rates have risen into the 8%s.  

Buyers need to be able to afford a home and have enough confidence in the market to go through with a purchase. To address affordability, many builders are offering aggressive incentives to help capture an outsized share of the market. The latter is harder to control as housing headlines scare some consumers to the sidelines.   

“Dynamics are shifting in the housing market as affordability worsens,” said Ali Wolf, Chief Economist for Zonda. “It used to be easy to say the new home market is outperforming the resale market and the East is outperforming the West. While both are still true, the discussion of today’s sales dynamics has been more market-by-market, builder-by-builder, product-by-product, and price point-by-price point specific.” 

New home cancellations more muted than last year

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 708,457 new homes sold in September at a seasonally adjusted annualized rate. This was a decline of 0.2% from last month and an increase of 33.0% from a year ago. On a non-seasonally adjusted basis, 56,903 homes were sold, 35.1% higher than last year and 7.9% above the same month in 2019.

While interest rates are higher this year than last and demand has wavered, the new home cancellation rate is much lower than what was experienced in the third and fourth quarters of 2022 and that has helped keep total contracts higher.

New Home PSI surprises to the positive for now

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 September PSI came in at 146.0, representing a 37.9% rise from the same month last year. The index is currently 16.2% below cycle highs. On a month-over-month basis, seasonally adjusted new home sales increased 2.9%.

• The markets that posted the best numbers relative to last year were Sacramento (+163.3%), Phoenix (+124.0%), and Las Vegas (+91.0%). These markets slowed dramatically last year but have since stabilized. The base effect of last year’s low levels is contributing to the large YOY percentages. 
• The metros that performed the worst year-over-year were Baltimore (-2.3%), Washington, DC (-1.5%), and Jacksonville (0.0%). 
• On a monthly basis, Cincinnati, Philadelphia, and Jacksonville were the best performing markets.

In order to add further context on the metro level, we have 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 using historical activity. Based on the percentage above or below baseline, markets are bucketed into performance groups ranging from significantly underperforming to significantly overperforming. 

• The National ZMR index came in at 117.2 in September, indicating a slightly overperforming market.  
• The major metros overperforming their historical averages most in September 2023 were Columbia, Chicago, and Fort Collins.  
• Only two markets were significantly underperforming, San Jose and Colorado Springs. Reno and San Francisco were slightly underperforming. 
• Among our top fifty markets, 68% were overperforming, 24% were average, and 8% were underperforming.

Continued appreciation for high-end homes        

National home prices increased year-over-year across entry-level, move-up, and high-end homes. Prices rose 0.1% for entry-level to $340,797, 0.8% for move-up to $532,543, and 3.7% for high-end homes to $931,107. 

Supplementing our data with a monthly survey Zonda conducts, 30% of builders reported raising prices in September, down from 37% in August. Further, 64% reported holding prices flat, up from 58% MOM. The percentage of builders reporting price increases has slowed as seasonality kicks in and builders further evaluate the affordability backdrop. 

Incentives are still common in today’s housing market to help address the affordability constraints for buyers. 57% of new home communities across the country were offering incentives in September, down slightly month-over-month. Mortgage rate buydowns, funds towards closing costs, and flex dollars help seal the deal.   

Project count up slightly year-over-year but still limited

There are currently 13,980 actively selling communities tracked by Zonda, up 0.7% from last year. On a month-over-month basis, the national figure slipped 2.0%. Total community count is 27.4% 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.

• Austin (+17.0%), Minneapolis (+13.4%), and Orlando (+10.6%) grew community count the most year-over-year. Relative to 2019, community count is down 12% and 31% in Austin and Orlando, respectively, but up 2% in Minneapolis.  
• Community count fell the most in Tampa (-17.4%), Seattle (-15.5%), and San Francisco (-13.9%) relative to last year. 
• Community count fell year-over-year in 84% of our select markets, rose in 14%, and were flat in 4%. 

National quick move-ins (QMIs) totaled 27,094, down 15.6% compared to last year and 7.1% lower month-over-month. Total QMIs are 90.3% 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. We are watching the trajectory of inventory in the coming months, though, to see if the pullback in demand starts to result in QMIs rising again like we saw at the end of last year. 

• The markets that grew the most year-over-year were Riverside/San Bernardino (+12.2%), Salt Lake City (+10.4%), and Los Angeles/OC (+8.7%).  
• Las Vegas, Salt Lake City, and Cincinnati have seen the most growth in QMIs compared to the same time in 2019, up 242.9%, 213.6%, and 122.3%, respectively.  
• QMIs are down the most compared to 2019 in Baltimore (-62%), New York (-59%), and San Francisco (-53%), three markets particularly limited by land and lot availability. 

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.