New home sales decline for fifth consecutive month in June 

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Zonda have released the New Home Pending Sales Index (PSI) for June 2022. The New Home PSI shows pending sales fell month-over-month and remained down year-over-year. 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 125.5 for June, representing a 7.5% decrease from June 2021. The index is 27.9% below cycle highs. 
• On a month-over-month basis, seasonally adjusted new home sales fell from May to June, down 0.2%, posting the fifth consecutive month-over-month decline. 
• The combined impact of limited supply and rising rates continues to be felt in the market as new home volume fell to the lowest level since May 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 10.5% year-over-year in June as supply remained low. The average sales rate per community input also fell, decreasing 8.2% year-over-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 in part 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. The average sales rate component is showing that demand is negatively responding to higher homeownership costs. Both the new home order volume and average sales rate ticked lower on a monthly basis. 

“Home sellers and home buyers are adjusting to a new reality in the housing market,” said Ali Wolf, Zonda’s chief economist. “Home sellers are quickly understanding the days of frenzied demand are behind us and it takes an extra push to get buyers to close. Home buyers are reevaluating their finances given today’s home prices and higher interest rates. They are also weighing fears of a recession against an unrelenting desire to own a home.” 

Pending new home sales trended above June 2021 levels in five of our 25 select markets, flat from five last month. 12 of 25 of our select markets increased month-over-month. Minneapolis increased the most on both a monthly and a year-over-year basis, rising 11.8% and 7.4%, respectively. 

The relationship between the percent change in the average sale rate and new home orders can reflect an imbalance of supply and demand. 20 of 25 select markets posted a positive spread, indicating current levels of volume are being somewhat restrained by lack of supply. Sales pace remains up year-over-year in five of Zonda’s select markets, a decrease from six last month. On the volume side, just one metro, Minneapolis, posted an increase compared to last year, flat from last month. 

“There are a lot of what-ifs in the housing market right now,” said Wolf. “Understanding changes in and interactions between consumer confidence, home prices, housing inventory, and interest rates are more important than ever for forecasting where things go from here.” 

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 25.5% above the base level.