New-Home Slowdown Isn’t Buyers, It’s Builders

NEW YORK – Builders are slowing down production to catch up with a backlog of projects while trying to keep construction prices in check. In some cases, they may be turning down willing, qualified buyers because they already have too many homes in production.

According to real estate analytics firm Zonda’s latest New-Home Pending Sales Index, which reflects February housing data, pending new-home sales fell month-over-month, but they’re still up 35% annually across the country.

Government data also showed a 10.3% decrease in February new-home construction. Builders are reporting that increases in material costs – notably on lumber – are continuing to challenge growth in new-home construction.

In a list of the 25 cities most impacted by too much demand, three Florida cities were ranked with Jacksonville at the top of the list. The number of pending new-homes sales – homes under contract but not yet completed – rose 22.9% in February compared to the month before. In a year-to-year comparison, the number of pending home sales was up 80.5%.

Tampa ranked at No. 10, with a 13% month-to-month increase in pending sales, and a 43.7% year-to-year increase in pending sales.

Orlando came in at No. 19. It saw a 7.1% month-to-month increase in pending sales in February, and a 15.2% year-to-year increase in pending sales.

“Seventy percent of builders are intentionally slowing or pausing sales to better align contracts with production capacity, which makes drawing market conclusions more difficult,” says Ali Wolf, chief economist of Zonda, which is focused on the home building and multifamily industries. “The underlying demand in the housing market is still there, though, even as prices and mortgage rates rise.”

Still, February’s pending new-home sales trended above year-ago levels in 22 of the 25 top markets Zonda tracks. The top-performing new-home markets in February were Jacksonville, Fla., Cincinnati, and San Antonio. But the numbers could be even higher if there was more inventory, economists note.

Zonda’s New-Home Pending Sales Index is a residential real estate indicator based on the number of new-home sales contracts signed across the country. The index is comprised of two components: new-home orders (which look at total sales and will fall based purely on limited supply) and the average sales rate per community (which captures how well builders are selling). Both gauges can be negatively impacted if builders intentionally cap sales.

Source: “New Home PSI: Sales Grew 35% YoY in February as Consumers Pushed Past Rising Home Prices and Mortgage Rates,” Zonda (March 19, 2021)

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