REGIONAL HOUSING SALES RATES


November 23, 2022


In the final Market Intelligence webinar of 2022, Zonda’s Chief Economist, Ali Wolf, talked a lot about various similarities and differences between regional markets across the United States. In this article, we’ll focus on the sales rates in the different regions. But first, let’s briefly look at what’s going on nationally.


THE NATIONAL BACKDROP

Wages have gone up since February 2020 but, given the effect of inflation on prices, wages are in effect lower. Resale home prices in that period have been going up between $2,000 and $8,000 every month in the major markets. And moving from a 3% interest rate to a 7% interest rate means $800 more per month for an average monthly mortgage payment.



Resale Appreciation Chart Image


Nevertheless, despite these rising costs, the national level of pending sales is only slightly below what it was in 2019. (Wolf repeatedly referenced 2019 as a recent healthy year for the housing market.)



Existing and New Home Sales Chart Image


AVERAGE SALES RATE

The average sales rate compared to 2019 is lower in some regions and higher in others. The same goes for year-over-year average sales rates.

Before we go further, what is the average sales rate? It’s the average monthly sales per community, neighborhood, or subdivision. This contrasts with total sales. Sometimes, total sales activity can be lower simply as a function of lower supply. Fewer subdivisions being built means fewer sales per month. But the average sales rate eliminates this factor by adjusting for how many subdivisions are available. (Suppose developer A sells, on average, 3 homes per month from the subdivision of 100 homes he built. That’s an average sales rate of 3% per month. Suppose developer B sells, on average 20 homes per month from the subdivision of 1000 homes she built. That’s an average sales rate of 2% per month. If developers A and B were the only developers in town, then the average sales rate in that town would be 2.5% per month.)

At one extreme, the average sales rate in Phoenix in 2019 was over 3% and a little under 1.5% currently. That is, the current rate is about half of what it was in 2019.

In contrast, Miami’s average sales rate in 2019 was just under 2% and now it’s over 3% (about the same as Phoenix in 2019).

Looking at the Pacific first, and moving east across the country, Wolf said that the first three regions may not give a very positive impression. But the next three tell a more positive story. How we judge the health of the building industry right now “depends on the specific market within the region, the housing product, what that market has been through, and which buyer group you’re selling to,” Wolf says.


THE PACIFIC REGION

This region includes Los Angeles/OC, Portland, Riverside/San Bernadino, Sacramento, San Diego, San Francisco, and Seattle. Every one of those markets has experienced drops in the average sales rate since last year, ranging from -20% for Los Angeles/OC to -59% for San Francisco.

The comparison with 2019 is more mixed, however, with three markets increased and four decreased. And the range is wide. Sacramento is down 98% and San Diego is up 82%.



Pacific Region Chart Image


Wolf’s proposed explanation for the drop in Sacramento, for example, is that pre-pandemic it was a more affordable location (by Californian standards) and “when the pandemic hit, and more people worked from home, more people moved a little inland” pushing up local prices. People could get more bang for their buck in Sacramento than in San Francisco, say. But as many people have returned to the office, prices have dropped again.


THE ROCKY MOUNTAIN REGION

In Denver, Las Vegas, and Salt Lake City average sales rates have dropped over the last year, from between -21% to -48%. And they’ve also dropped since 2019, from between -67% to -91%. Wolf mentioned that Boise is also following the same pattern. This is one of the regions that is likely to leave a more negative impression on builders. And it’s unsurprising that builder incentives in this region are high, with 97% of Denver projects having incentives.



Rocky Mountain Region Chart Image


THE SOUTHWEST REGION

This region includes Phoenix, Austin, Dallas, Houston, and San Antonio. It’s had year-over-year drops in the sales rate across the board, varying from -10% in Houston to -61% in Phoenix. Since 2019, only Houston has seen an increase (6%), and Phoenix has experienced a massive drop of 181% since 2019.



Southwest Region Chart Image


One of Zonda’s experts on the Southwest region says that what’s going on there is that both buyers and sellers are simply trying to readjust to what the “new normal” market is, where home prices match demand.


THE MIDWEST REGION

The picture is more mixed in this area, which includes Chicago, Cincinnati, Columbus, Detroit, Indianapolis, and Minneapolis.

There were significant drops in the average sales rates, year-over-year, in Columbus, Indianapolis, and Minneapolis. Chicago and Cincinnati have been relatively stable at -4% and 0% respectively. Detroit’s YOY sales rate increased by 9%.

The biggest changes in this region since 2019 are in Chicago and Indianapolis, where average sales rates have increased by 42% in both locations. In the opposite direction, Cincinnati and Columbus have experienced drops of 26% and 21% respectively since 2019.



Midwest Region Chart Image


Wolf suggested that there’s significant migration from the Southeast to the Midwest. As the former becomes more expensive, the latter is affordable in comparison. As she put it, “Relative affordability is still important.”


THE SOUTHEAST REGION

This region includes Atlanta, Charleston, Charlotte, Jacksonville, Louisville, Miami, Nashville, Orlando, Raleigh, Richmond, and Tampa. Since 2019, the majority (9 out of 11 cities) have had increased sales rates, with as much as 122% in Miami.

However, year-over-year, all but Miami have experienced drops in their sales rates, varying from -4% in Charleston to -28% in Richmond. Again, this may be the beginning of a gradual return to the more normal year of 2019.



Southeast Region Chart Image


Migration, lifestyle changes, and diversified employment opportunities are helping support some of the growth in the Southeast. Wolf added, “This market has held up a lot better than most other markets and is outperforming compared to history.”

Note the change in monthly payments since year end. (The data is based on a 6% interest rate, not 7%.) In Miami, it’s 78% higher! But those huge increases in monthly payments have “not translated into dramatically slower sales, at least at this point,” Wolf said.


THE NORTHEAST REGION

Finally, in the northeast, the sales rates in New York, Washington DC, and Philadelphia are all down YOY, from -36% in DC to -17% in New York.

The markets vary considerably in the changes in sales rates compared to 2019. DC has decreased by 74%, New York has stayed the same, and Philadelphia has increased by 7%.



Southeast Region Chart Image


Wolf said that the Northeast is not as “boomy and busty” as some other markets. Because the cities are older and there’s so little developable land, there aren’t many units under construction. In addition, there are constraints on resale inventory, with homeowners not that willing to put their homes on the market. All this leads to a more stable market compared to other regions.

About this region, Dan Fulton, Zonda's Senior Vice President of Advisory, said, “There are incentives and price cuts to move product today, but also an expectation that price changes in the medium term aren't dramatic because of tight resale inventory.”

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