New home sales surprisingly steady in a wobbly market
New homes may be particularly appealing to buyers when existing home inventory is tight.
- New home sales have increased each month since November, the report shows.
- However, high borrowing costs remain a major hurdle for buyers.
- Pending new home sales are highest in places like Dallas, Salt Lake City and Raleigh.
This week, the industry got new insight on the lackluster growth — or rather, decline — of closings when the National Association of Realtors announced that existing home sales dropped 3.4% in April from March, a 23.3% year-over-year decline.
But what's the situation for new home sales?
It's quite a different story. According to a new report from Zonda, which tracks 65% of new home construction across the country, there appears to be an upward trend over the past few months. Zonda counted 712,357 new homes sold in April, which is a fraction of the 4.28 million transactions on existing homes in the same period. But as existing home sales fell, new home sales grew by 5.4% month-over-month and 8% year-over-year.
New home sales have been on a steady growth trend after bottoming out in November at just 507,000 homes sold. In December, that number rose to 530,000, crested the 600,000 mark in January, and reached 676,000 new homes sold in March.
The lack of existing inventory has made new homes more appealing to buyers, Zonda researchers said. However, elevated mortgage rates and affordability remain major hurdles for all homebuyers.
"Assuming we resolve the debt ceiling debacle, there are reasons to believe mortgage rates could come down over the next 12 months," Ali Wolf, Zonda's chief economist, said in the report. "But for now, a substantial improvement is hope rather than reality."
Zonda uses its own proprietary index for pending home sales, which offer some guidance for upcoming home closings. According to its Home Pending Sales Index, metros that saw the strongest gains month over month for pending new home sales were Dallas, Salt Lake City and Raleigh, while Salt Lake City, Phoenix, and Austin have been the best performing markets year-over-year.
Notably, those markets — which boomed during the pandemic — saw big declines in demand and appreciation as the market began to slow last year, but they appear to have rebounded, at least in the new home sector.
And as one would expect during a period of elevated inflation, national home prices have increased across the board since this same period last year. Prices for what Zonda categorizes as "entry-level" homes have increased 3.5% to $338,540, while "move-up" home prices have increased 3.5% to $528,712 and "high-end" homes have appreciated by 6.9% to $913,892.
One segment of new home sales that may be a boon to buyers in this limited-supply market is quick move-ins (QMIs), defined as homes that can likely be occupied within 90 days. As buyers pulled out of the market late last year due to high interest rates, new construction supply began outpacing demand, and QMIs represented excess inventory builders needed to unload. But as buyers have returned in search of homes this spring — and found limited existing home inventory — QMIs have become an asset for new home communities.