By Vincent Salandro | Builder
After a two-year period where it was not possible to build homes fast enough to keep up with demand, rising interest rates and ongoing affordability concerns have begun to temper demand in the housing market. Zonda’s most recent New Home Pending Sales Index indicated new-home contract sales in June were back to 2019 levels, with some markets, including Phoenix, Salt Lake City, and Las Vegas, performing below 2019 sales levels. Additionally, the supply of new homes relative to sales in June was the highest since 2010. While 2019 was a strong year for housing overall, the shift from the highs of 2020 and 2021 are impacting overall builder sentiment and strategies required to navigate the new market.
“For the second quarter of 2022, the pace of new-home orders was consistent with our company’s historic pre-pandemic order performance for a second quarter, but we did experience a noticeable decline in order activity as the quarter progressed,” says Doug Bauer, CEO of Tri Pointe Homes. The pace of orders per community decreased from 4.7 in April to 2.8 in June. “While we typically see a seasonal slowdown in demand as we approach the summer months, it’s clear the combination of higher rates and lower consumer confidence resulted in a slower buying pace in most of our markets. With the uncertainty around the economy, we believe it may take some time for consumers and the market to find their footing again, although we saw consumer engagement improve as July progressed.”
Changing Market Dynamics
Douglas Yearley, CEO and chairman of Toll Brothers, says while demand is still solid, it has moderated from “the unprecedented pace of the past two years,” with rising home prices, inflation concerns, stock market volatility, and interest rates all negatively impacting buyer sentiment. Mike Forsum, chief operating officer for Landsea Homes, says interest rates and lower consumer confidence “have created a more competitive home buying sales environment.”
