Zonda Newsfeed: The Current State Of Housing Demand, Supply, And Price

The housing market is rebounding nicely and is on track for the best year since 2007. However, sentiment and purchases can turn on a dime if domestic, geopolitical, or equity-related uncertainty heightens.

August new home sales grew 18% year-over-year and our database shows builders are averaging about 2.0 sales per month per community nationally compared to 1.5 this time last year. The good news is complemented by slowing home price appreciation, mortgage rates sub-4.0%, and a broader stock market that hit the best year-to-date gain since 1997.

New Home Sales On Track For Best Year Since 2007 

New home sales spiked this summer as consumers reevaluated whether now is a good time to buy a home.

• Builders are finally bearing the fruit of their supply pivot over the past few years. Housing affordability is not a new challenge and builders have been structuring their new communities to try to lower average sales price by providing smaller homes, denser neighborhoods, or more attached product. 
• Data from Zonda shows Las Vegas, Phoenix, Riverside, Sacramento, and Orlando are selling the fastest on a per-project basis. All of the markets are hitting at least 2.5 sales per month per community. Riverside is the only one of the five to see the average sales rate per community drop on a year-over-year basis from roughly 3.5 to just below 3.0.
• The new and existing home markets are behaving differently. New home sales, 10% of overall transaction activity, are up 6.6% year-to-date. The remaining 90% of the market, the existing home space, is down 2.5% over the same period. If existing home sales remain depressed, overall housing and economic activity could slow due to longer household tenure and the resulting fewer transactions. 

New Home Inventory Back At The Historical Average

Months of new home supply is down compared to August 2017 and 2018 levels, but 12% above the lows during the same month in 2016.  

• During the slowdown in 2H18, months of new home inventory peaked at 7.4. Incentives and price cuts offered by builders and rebounding consumer demand helped stabilize supply.
• Beyond seasonal trends, the existing home space had little build-up in supply during the same period as homeowners withheld their homes from the market. 
• Lack of supply at the right price point is holding new home sales back and is one of the fundamental reasons the market is performing below potential.

Home Prices Continue The Flattening Trend 

The Corelogic/Case-Shiller 20-City Composite Index shows home prices grew 2.0% year-over-year. 

• Seattle was the only city in the index that went negative in July on a year-over-year basis. Year-to-date trends from public record data show a downward adjustment to home prices in San Jose as well. 
• San Francisco, Los Angeles, and New York, three markets particularly vulnerable to the changes to state and local income taxes, were barely positive in the latest release.
• Looking at price data by tiers highlights that even the highly desirable entry-level product is not immune to slowing growth. For example, bottom-tier prices grew 11% year-over-year last July compared to 6% this year.