The housing market ended 2022 in a completely different place than where it started.
After reaching near cycle highs in 2021’s fourth quarter and 2022’s first quarter for sales, Zonda data showed consumer demand slowed dramatically in response to the doubling in mortgage rates, exhaustive home price appreciation, and heightened recession fears.
Sales in the first quarter of 2023 were an improvement from the end of 2022 as some builders lowered prices or offered incentives, and consumers started to accept the reality of higher home prices and mortgage rates. Affordability relief moving forward would require some combination of falling home prices, higher wages, lower mortgage rates, increased incentives, and more supply.
The inflection point for the housing market was in April 2022, when only the faintest signs of cooling housing demand were showing. Some buyers were stepping out of the market due to affordability, while others were motivated to snatch up their last chance at lower rates. As the year progressed, the motivated buyers driven by fear of missing out, or FOMO, were replaced with buyers suffering from FOBATT, or fear of buying at the top.
Zonda’s March New Home Pending Sales Index, accounting for both new-home order volume and sales rate, shows that new-home sales are just slightly above the slowdown seen in the fourth quarter of 2018, a slower period in recent housing history also caused by diminishing affordability. Current sales activity is down 25% year over year and 27% year to date.
National quick move-ins are up over 30% compared with the same month in 2019, with roughly 40% of builders Zonda surveyed saying they are uncomfortable with current levels and 60% saying they are comfortable. The lack of resale inventory has been a boon for home builders, with new homes representing roughly 30% of total inventory, up from 10% to 15% historically.
Builders will need to continue to be creative in terms of affordability relief, including adjusting home size, density, finishes, and location. If done right, Zonda data shows that there are a lot of prospective home buyers sitting on the sidelines looking to buy a home at the right time and for the right price.
Overall, the top 200 firms accounted for 500,282 new homes in 2022*, a 1.5% increase compared with 2021. Similarly, the $238 billion in associated revenue was a 15% rise over 2021.
At the Builder 100 event, May 1-3, in Dana Point, California, BBL Building Co. and Van Metre Cos. will be honored as the Biggest Movers on the Builder 100 and Next 100 lists, respectively. BBL moved 72 spots to No. 47, and Van Metre jumped 34 spots to No. 113.
Nik Scoolis, manager of housing economics at Zonda, contributed to this article.
*Total closings number for the top 200 builders updated 5/2/23.