New-home sales remained strong through June despite the persistence of high mortgage rates in the economy, according to Zonda’s New Home Market Update report.
The Federal Reserve’s 10 short-term interest rate increases since March 2022 in an attempt to cool the economy contributed to a strong pullback in the housing market at the end of last year.
However, there has been an unintended consequence of the high mortgage rates in 2023: The supply pool for housing is smaller than the demand pool. Those who already own a home are reluctant to give up their low interest rate and buy in the current environment of high-6% and low-7% rates; as a result, available housing inventory is “a hot commodity,” according to Zonda.
Zonda’s new-home sales metric—which counts the number of new-home contract sales each month and accounts for both cancellations and seasonality—was essentially flat month over month in June at a seasonally adjusted annual rate of 734,242 new homes sold. On a year-over-year basis, the June annualized rate is 33.5% higher than June 2022. On a nonseasonally adjusted basis, 62,558 new homes were sold in June, 36.1% more than June 2022 and 11.9% above the same month in 2019.
“While consumers have brushed off higher interest rates, we are tracking the impact of tighter credit conditions on acquisition, development, and construction loans, especially for smaller builders,” says Zonda chief economist Ali Wolf. “There’s an increased desire to get more homes built, but there are also factors outside of our control that could play a huge role in where the market goes from here.”
Zonda’s New Home Pending Sales Index (PSI)—created to account for fluctuations in supply by combining total sales volume with the average sales rate per month per community—recorded a reading of 146 in June, a 33.3% increase from the same month last year and 5.7% higher than May. The index is 16.1% below cycle highs, according to Zonda.
Sacramento, California (+142.6%); Seattle (+85.5%); and Baltimore (+58.9%) reported the strongest year-over-year improvement in PSI, while New York (+1.8%); Jacksonville, Florida (+3.6%); and Philadelphia (+5.3%) performed the worst. On a monthly basis, Minneapolis, Las Vegas, and California’s Riverside/San Bernardino were the best-performing markets, according to Zonda.
National home prices increased year over year across entry-level, move-up, and high-end homes, according to Zonda. Prices rose 1.1% for entry-level to $338,748, 1% for move-up to $526,697, and 3.7% for high-end homes to $913,624.
Approximately 53% of builders reported raising prices in June, and 42% reported holding prices flat, according to a monthly survey conducted by Zonda. At the end of 2022, approximately 50% of builders were lowering prices, and 50% were holding prices flat.
Incentives are still common in the housing market, helping affordability-constrained buyers access the market. Sixty-three percent of new-home communities across the country were offering incentives in June, according to Zonda. The most popular incentives include mortgage rate buydowns, funds toward closing costs, and flex dollars.
The count of actively selling communities is marginally down from a year ago at 13,791. On a month-over-month basis, the count is down 2.2%. Zonda says the lack of competition from other new-home communities is allowing for upward pressure on the average sales rate per month per community.
Riverside/San Bernardino; Austin, Texas; and Salt Lake City grew community count the most on a year-over-year basis, while community count fell the most in Tampa, Florida; San Francisco; and Atlanta relative to 2022.
Quick move-ins (QMIs)—homes that can likely be occupied within 90 days—totaled 23,333 nationally in June, down 8.7% month over month but 3.6% higher compared with June 2022. QMIs are selling quicker than builders can replace them in many markets with the product type viewed by consumers as a great alternative to the resale market given limited existing inventory.Total QMIs are 42.2% above 2019 levels.
On a metro basis, 40% of Zonda’s analyzed markets increased QMI count year over year, led by Salt Lake City (+154.3%), Phoenix (+37.4%), and Cincinnati (+30.4%).
This article originally appeared on Builder Online.
