New-home sales beat expectations again for the month of May, according to Zonda’s New Home Market Update report.
Although the overall demand pool is down compared with the past few years, the lack of inventory is keeping prices firm and competition high for desirable homes. Many builders continue to benefit from the ability to compete with the resale market by offering quick move-in homes, the ability to work with the discerning buyers by offering customization on to-be-built product, and the ability to help the affordability-challenged buyer by offering mortgage rate buydowns and funds toward closing costs.
“Consumer demand for housing has defied logic throughout 2023,” says Ali Wolf, Zonda’s chief economist. “This is testament to the demographic tailwinds of today’s market and the inherent desire for homeownership. We are continuing to watch the depth of today’s buyer pool, though, given mortgage rates are at or near 7% again and home prices back on the rise.”
Zonda’s new-home sales metric counts the number of new-home contract sales and accounts for both cancellations and seasonality. The metric shows there were 704,853 new homes sold in May on a seasonally adjusted annualized rate, a 1.6% decline from the previous month but an increase of 11.2% from a year ago. On a nonseasonally adjusted basis, 62,559 homes were sold, down nearly 13% year over year and compared with the same month in 2019.
The 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—came in at 139.5, representing an 11.9% rise from the same month last year. The index is 19.9% below cycle highs.
Salt Lake City; Sacramento, California; and Seattle reported the strongest year-over-year improvement, while New York, Philadelphia, and Atlanta performed the worst year over year. On a monthly basis, Salt Lake City, Sacramento, and Seattle were the best-performing markets.
National home prices increased year over year across entry-level, move-up, and high-end homes. Prices rose 2.5% for entry-level to $339,084, 2.5% for move-up to $529,945, and 6.2% for high-end homes to $920,483, according to Zonda.
Sixty percent of builders reported raising prices in May, and 34% reported holding prices flat. This stands in direct contrast to the end of last year, when roughly 50% of builders were lowering prices and 50% were holding prices flat.
“We are in the 'life happens' housing market, one where sales are driven primarily by changes in life stage and lifestyle,” states the report. “Marriage, divorce, death, retirement, downsizing, having children, and relocating encourage a move despite the mortgage lock-in effect, housing affordability challenges, and economic uncertainty.”
Incentives are still common in today’s housing market to help address the affordability constraints for buyers. The majority of new-home communities across the country were offering incentives in May, with the most popular being mortgage rate buydowns, funds toward closing costs, and flex dollars.
There are currently 13,814 actively selling communities tracked by Zonda, up 0.6% from last year. On a month-over-month basis, the national figure slipped 2.5%. Total community count is 28.6% below the same month in 2019.
California's Riverside/San Bernardino, Salt Lake City, and Los Angeles grew community count the most year over year, while community count declined the most on an annual basis in Tampa, Florida; Philadelphia; and New York.
National quick move-ins (QMIs)—homes that can likely be occupied within 90 days—totaled 23,818, up 49.6% compared with last year but 13.3% lower month over month. Total QMIs are 32.2% above 2019 levels.
Jacksonville, Las Vegas, and Sacramento have seen the most growth in QMIs compared with the same time in 2019, up 498.8%, 195.3%, and 173%, respectively. QMIs are down the most compared with 2019 in Seattle, Atlanta, and San Francisco.