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New Home Sales Grew 3.2% in October for the Third Month, Zonda Reports

November 22, 2021 12:01 PM EST

NEWPORT BEACH, Calif. (PRWEB) November 22, 2021

Today, the experts at Zonda, the housing industry's foremost advisors, released the New Home Pending Sales Index (PSI) for October 2021. The New Home PSI shows pending sales grew month-over-month but remained negative on a year-over-year basis. 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 156.6 for October, representing a 6.5% decline from October 2020. The index is 35.2% higher than October 2019.
  • On a month-over-month basis, seasonally adjusted new home sales posted strong growth from September to October, up 3.2%.
  • The housing market is below peak activity seen in January 2021, trailing the cycle high by 10.0% on a seasonally adjusted basis, however the market remains 25.7% above the pre-pandemic high seen in February 2020.

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 fell 20.4% year-over-year in October as supply continued to trickle lower. The average sales rate per community input is also negative, down 5% year-over-year but at the highest level since May of this year.

New home orders, which look at total sales volume, have been significantly impacted with ever decreasing active project count. In other words, sales are down because inventory is scarce. The average sales rate per community captures how well builders are selling at the open communities and strips out the supply side. Both components rose on a nonseasonal adjusted month-over-month basis.

"There remains pent-up demand from buyers across the age and income spectrums," said Ali Wolf, Zonda's chief economist. "These buyers are a mixture of people who have been unsuccessfully shopping since the start of the pandemic as well as buyers looking to lock in today's historically low interest rates amid some volatility."

Pending new home sales trended above October 2020 levels in 10 of our 25 select markets, an increase from six last month. Twenty of 25 of our select markets increased month-over-month. Las Vegas fell -11.5% from September, registering the largest month-over-month decline for the second consecutive month.

The relationship between the percent change in the average sale rate and new home orders can reflect an imbalance of supply and demand. Twenty four of 25 select markets posted a positive spread, indicating current levels of volume are being restrained by lack of supply. Sales pace remains up year-over-year in 11 of Zonda's select markets, an increase from nine last month. On the volume side, only New York posted an increase compared to last year.

"October marks the third month where new home sales rose compared to the month prior," said Wolf. "Our latest forecasts call for growth in home sales in 2022 over 2021, but we will be watching affordability, the trajectory of mortgage rates, supply chain challenges, and housing inventory closely."

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 56.6% above the base level.

The next Zonda New Home PSI press release, featuring November 2021 data, will be issued on Monday, December 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 only looks 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.

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