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Study: US New Home Market is Stronger Than Last Year

Feb 27, 2020 4:00:00 AM

January’s New Home Pending Sales Index (PSI) by Meyers Research shows that new home contracts are 13.1% stronger than last year and 3.6% higher than two years ago after adjusting for supply and seasonality.

Markets Driving the Increase in New Home Pending Sales:

  • Nine of the 10 key markets grew year-over-year, led by San Francisco, Los Angeles, and Denver.
  • New home pending sales in Phoenix are up a strong 16.0% compared to two years ago, which highlights the current strength of the market. On a per community basis, builders are hitting the highest rate since the index’s inception.
  • The strong annual clip for Los Angeles and San Francisco is less robust when put in context. Both markets are lower compared to two years ago, with Los Angeles sales 19.3% below January 2018 and San Francisco down 24.3%.

—Neither the coronavirus nor the upcoming election season have dampened today’s homebuyers—

The experts at Meyers Research, the housing industry’s foremost advisors, released the New Home Pending Sales Index (PSI) for January 2020. The New Home PSI, backed by data from Zonda and Metrostudy, shows pending sales increased year-over-year and month-over-month across the United States. 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 118.4 for January, representing a 13.1% increase from January 2019. On a month-over-month basis, new home sales increased by 0.8% between December 2019 and January 2020.

“We’ve entered peak homebuying season and reduced mortgage rates have hit at the perfect time,” said Ali Wolf, director of economic research at Meyers Research. “Today’s mortgage rates are telling consumers to take advantage and all signs point to them listening.”

Nine of the ten key markets grew year-over-year. San Francisco, Los Angeles, and Denver experienced the most significant growth compared to last year, up 37.8%, 36.9%, and 35.4%, respectively. Half of the markets grew on a month-over-month basis, led by Los Angeles. 

Given the easy comp from the slowdown in late-2018 and early-2019, looking at the two-year trend is very telling. The national index is 3.6% higher than January 2018. Spring selling season in 2019 returned to normal levels of volume so the need to review the data on a two-year basis will only apply to new home sales for the next couple of months.

New home pending sales in Phoenix are up a strong 16.0% compared to two years ago, which highlights the current strength of the market. On a per community basis, builders are hitting the highest rate since the index’s inception. Total new home volume in Phoenix is within 3% of the market’s cycle high. The two-year growth rate in new home sales also highlights considerable strength in Houston, Dallas, and Denver.

The strong annual clip for Los Angeles and San Francisco is less robust when put in context. Both markets are lower compared to two years ago, with Los Angeles sales 19.3% below January 2018 and San Francisco down 24.3%.

“The new home data captures the underlying strength of today’s housing market,” said Wolf. “January’s read was the best so far this cycle as consumers brush off the election and coronavirus woes and focus on the opportunities in today’s housing market.” 

New home data is susceptible to outsized swings in contract activity based on shifts in the number of actively selling communities. As a result, Meyers Research 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 18.4% above the base level.

Methodology

The Meyers Research New Home Pending Sales Index (PSI) is built on proprietary, industry-leading data that covers 60% of the production new home market across the United States. Reported number of new home pending contracts are gathered and analyzed each month. Released on the 15th business day of each month, the New Home PSI is a leading indicator of housing demand compared to closings because it is based on the number of signed contracts at a new home community. Meyers Research monitors 18,000 active communities in the country and the homes tracked can be in any stage of construction.

The new home market represents roughly 10% of all transactions, allowing little movements in supply to cause outsized swings in market activity. As a result, the New Home PSI blends the cumulative sales of activity 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, removes outliers, and uses June 2016 as the base month. The foundation of the index is a monthly survey conducted by Meyers Research. It is necessary to monitor both new and existing home sales to establish an accurate picture of the relative health of the residential real estate market.

 

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