NEWPORT BEACH, Calif., April 21, 2021 /PRNewswire-PRWeb/ — Today, the experts at Zonda released the New Home Pending Sales Index (PSI) for March 2021. The New Home PSI shows pending sales decreased 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 158.2 for March, representing a 50% increase from a weak March 2020.
- The housing market faced a pandemic-induced crash for two months in 2020. The index is 47.9% above March 2019 levels.
- On a month-over-month basis, new home sales fell by 6.1% from February.
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 21% year-over-year in March and fell 2% month-over-month. The average sales rate per community input rose 51% year-over-year and 1% 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 89% of builders reported doing in March.
“It takes two to tango in the housing market, with demand and supply equally important,” said Ali Wolf, Zonda’s chief economist. “The month-over-month drop is a reflection of the limited inventory on the market today, including resulting sales caps. Rising home prices are causing some buyers to raise an eyebrow, but for now, demand is still high.”
Pending new home sales trended above March 2020 levels in 24 of select 25 top markets. The best new home markets in March were Denver, Philadelphia, and Raleigh. Given the year-over-year comparisons are dependent on how much local housing markets slowed during March of 2020, the month-over-month is a better gauge this month. Contract sales in San Francisco, Sacramento, and Las Vegas posted the best change on a month-over-month basis.
Seattle was the only market to drop on a year-over-year basis in March. There are two factors driving the decline. First, the Seattle housing market was surprisingly strong in March 2020 when home sales in other markets were slumping. Second, new home inventory in Seattle this year is particularly tight, limiting the market’s full potential for sales.
The input components give great color when trying to make sense of supply and demand. For example, new home orders are down year-over-year in Washington, DC, Austin, Seattle, and Salt Lake City. In these markets, builders that have inventory to sell are doing great but overall transactions are down on tight supply.
“This time last year, people were worried about the housing slowdown,” said Wolf. “The ensuing rebound was sharp and has proved to have staying power. Increased savings, the ability to work from anywhere, and low interest rates are powerful forces for homebuyers of all different ages even in a challenging market.”
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 58% above the base level.
The next Zonda New Home PSI press release, featuring April 2021 data, will be issued on Friday, May 21, 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.
