In a surprising turn of events, the new-home sales market has weathered the storm of high mortgage rates and emerged stronger than ever. According to Zonda’s New Home Market Update report, sales of new homes surged year over year across all 25 selected markets in June. This unexpected resilience has caught the attention of industry experts and underscores the enduring appeal of the real estate sector despite the challenges posed by elevated interest rates.
The Federal Reserve’s series of short-term interest rate hikes since March 2022 was initially intended to cool down the economy. However, this move led to an unexpected contraction in the housing market toward the end of the previous year. One might assume that high mortgage rates in 2023 would continue to deter buyers. Yet, a surprising consequence has arisen: a discrepancy between housing supply and demand. Existing homeowners have been reluctant to give up their low-interest-rate mortgages, resulting in a scarcity of available housing inventory. Zonda notes that scarcity has turned available properties into hot commodities.
Zonda’s report reveals that new-home sales remained relatively steady in June, indicating a seasonally adjusted annual rate of 734,242 units sold. In a remarkable year-over-year contrast, June 2023 saw a 33.5% increase compared to June 2022. Unadjusted, 62,558 residential homes were sold in June. This reflected a remarkable 36.1% increase from June 2022 and an impressive 11.9% growth over the same month in 2019.
Despite the seemingly robust market, Zonda’s chief economist, Ali Wolf, cautioned against complacency. Wolf points out that while consumers appear to have adapted well to higher interest rates, the impact of tighter credit conditions on acquisition, development, and construction loans, especially for smaller builders, is a crucial factor to monitor. External factors, beyond control, also can significantly influence the market’s trajectory.
The New Home Pending Sales Index (PSI) introduced by Zonda, which factors in both total sales volume and the average sales rate per month per community, recorded a reading of 146 in June. This represents an impressive 33.3% increase compared to the same month last year and a 5.7% rise from May. While the index remains 16.1% below cycle highs, the upward trend is a promising indicator of market strength.
Several markets have demonstrated exceptional year-over-year PSI improvements. Sacramento, California (+142.6%), Seattle (+85.5%), and Baltimore (+58.9%) stand out as exemplars of this trend. However, some markets have experienced more modest growth, with New York (+1.8%), Jacksonville, Florida (+3.6%), and Philadelphia (+5.3%) recording relatively lower PSI increases. Every month, Minneapolis, Las Vegas, and California’s Riverside/San Bernardino have been identified as the top-performing markets.
National home prices have continued to rise across various segments. Entry-level homes saw a 1.1% increase to reach $338,748, move-up homes rose by 1% to $526,697, and high-end homes experienced a 3.7% increase to $913,624. This upward price trajectory aligns with the growing demand for available housing inventory.
Despite the market’s resilience, the practice of offering incentives remains commonplace. Zonda reports that 63% of new-home communities provided incentives in June, which greatly makes homeownership more accessible to buyers constrained by affordability concerns. Incentives such as mortgage rate buydowns, contributions towards closing costs, and flexible funds continue to play a crucial role in facilitating home purchases.
The count of actively selling communities has experienced a marginal year-over-year decline, currently standing at 13,791. This decline, however slight, has contributed to an increase in the average sales rate per month per community. Notably, some markets, including Riverside/San Bernardino, Austin, Texas, and Salt Lake City, have experienced community count growth. However, others like Tampa, Florida; San Francisco; and Atlanta have seen a decline relative to 2022.
Quick move-ins (QMIs), homes that can be occupied within 90 days, totaled 23,333 nationally in June. While this figure represents an 8.7% decrease month over month, it is 3.6% higher than June 2022. QMIs continue to be a popular choice among consumers, providing a viable alternative to the resale market due to limited existing inventory.
As markets like Salt Lake City (+154.3%), Phoenix (+37.4%), and Cincinnati (+30.4%) demonstrate, QMI counts have shown substantial year-over-year growth in several metropolitan areas. This further underscores the dynamism of the new-home sales market and its ability to adapt and thrive despite high mortgage rates.
In conclusion, the unexpected resilience of June’s new-home sales testifies to the enduring appeal of the real estate sector. Despite high mortgage rates and associated challenges, the market has proven its ability to weather the storm and flourish. This phenomenon underscores the importance of monitoring macroeconomic trends and local factors to understand market dynamics. As the industry navigates through uncertainties, Zonda’s report offers valuable insights for businesses and professionals looking to make informed decisions in this dynamic landscape.