Zonda Provides New Home Market Update

The spring selling season for the new home market is shaping up to be stronger than expected. The U.S. Zonda Market Ranking for February came in as slightly overperforming, up from average this time last year. While higher interest rates and home prices have deterred some buyers, those with a strong need for a home are still finding ways to make it happen, including some help from builder incentives.

The strength in the new home market stems from a lackluster resale market. Inventory has increased 15% year-over-year but is still down 40% compared to pre-pandemic levels. To address this shortage, new home builders are ramping up construction, with 80% planning to increase their build rate in 2024 compared to 2023.

“We need to remember not to paint the housing market with a broad brush,” said Ali Wolf, chief economist for Zonda. “Market strength varies greatly by region and price range. For example, eastern markets are generally outperforming the West, and high-end homes are selling fast relative to themselves due to less price-sensitive buyers.”

The spring selling season started strong

Zonda’s new home sales metric counts the number of new home contract sales each month and accounts for both cancellations and seasonality. This metric shows there were 718,098 new homes sold in February on a seasonally adjusted annualized rate. This was a decline of 0.9% from last month but an increase of 11.4% from a year ago. On a non-seasonally adjusted basis, 61,799 homes were sold, 13.5% higher than last year and 6.4% above the same month in 2019.

Zonda’s revised numbers show 671,000 new homes were sold in the full year of 2023, an increase of 11% from 2022.

The New Home PSI rose month-over-month

Total sales volume is influenced by both supply and demand. Zonda’s New Home Pending Sales Index (PSI) was created to help account for fluctuations in supply by combining both total sales volume with the average sales rate per month per community. The February PSI came in at 141.5, representing a 10.9% rise from the same month last year. The index is currently 18.7% below cycle highs. On a month-over-month basis, seasonally adjusted new home sales increased 2.3%.

• The markets that posted the best numbers relative to last year were Phoenix (+34.9%), Denver (+34.1%), and Las Vegas (+33.7%). February sales were up 22%, 24%, and 26% compared to 2019, respectively.
• San Francisco (-11.8%), Jacksonville (-9.9%), and Dallas (-6.0%) declined year-over-year.
• On a monthly basis, Cincinnati, Denver, and Jacksonville performed best.

The national ZMR was slightly overperforming in February

In order to add further context on the metro level, we created the Zonda Market Ranking (ZMR). The ZMR accounts for both sales pace and volume, is seasonally adjusted, and is taken as a percentage relative to a baseline market average. Based on the percentage above or below baseline, markets are bucketed into performance groups ranging from significantly underperforming to significantly overperforming relative to historical activity.

The map below shows a snapshot of top production markets by region. Subscribers of the National Outlook report can access the full list in Zonda’s client portal.

• The National ZMR index came in at 113.7 in February, indicating a slightly overperforming market, an improvement from the average market last year.
• Zonda’s snapshot markets were split between 60% slightly overperforming and 40% average in February. Among Zonda’s top 50 major markets, 64% were overperforming, 22% were average, and 14% were underperforming.
• Importantly, the ZMR does not account for what it takes to sell a home. For example, securing a sale might still feel difficult in a “significantly overperforming” market, but if incentives offered resulted in a sale, we count the sale.

Prices declined across all segments

National home prices decreased year-over-year across entry-level, move-up, and high-end homes. Prices fell 2.1% for entry-level to $329,955, 1.7% for move-up to $517,074, and 0.2% for high-end homes to $911,228. The declines represent smaller home sizes, differing locations, and select price drops.

Supplementing our data with a monthly survey Zonda conducts, 51% of builders reported raising prices in February, up from 42% in January. Further, 46% reported holding prices flat, down from 54% last month.

Community count levels remain stubbornly low

There are currently 14,516 actively selling communities tracked by Zonda, up 3.7% from last year. On a month-over-month basis, the national figure slipped 2.2%. Total community count is 24.3% below the same month in 2019. The lack of competition from other new home communities has allowed for some upward pressure on the average sales rate per month per community. Zonda defines a community as anywhere where five or more units are for sale.

• Salt Lake City (+13.1%), Orlando (+12.7%), and Austin (+12.6%) grew community count the most year-over-year. Relative to 2019, community count was down 23%, 30%, and 13%, respectively.
• The biggest community count declines relative to last year were in San Francisco (-19.3%), Philadelphia (-16.7%), and Cincinnati (-13.4%).
• Community count rose month-over-month in 12% of our select markets, 0% were flat, and 88% fell.

National quick move-ins (QMIs) totaled 26,726, down 10.2% compared to last year and 9.1% lower month-over-month. Total QMIs are 56% above 2019 levels. QMIs are homes that can likely be occupied within 90 days.

For many consumers, QMIs provide a great option given the lack of resale supply. As a result, some builders have pivoted to a more spec-heavy strategy to help capture today’s buyers.