December 2014 U.S. Home Sales, Inventory and Prices

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Sales of new single-family homes jumped in December, by 50,000 units (+11.6%) relative to the previous month, to a seasonally adjusted and annualized rate (SAAR) of 481,000. Data for November was revised down from 438,000 to 431,000 units -- the seventh consecutive month of downward revisions. “This data series is suffering from methodology issues,” observed one analyst. “Not only does it cycle between good [and] bad months -- but the backward revisions continue to be moderate to significant” (e.g., August 2014 sales have been clipped -11.1% from the original estimate). Sales have been essentially flat (averaging 439,000) since January 2013. Sales in December were 9.7% above year-earlier levels, and 1.9% higher on a year-to-date (YTD) basis than the same months in 2013.

Meanwhile, the median price of new homes sold rose by $6,500 (+2.2%) to $298,100. The average price of homes sold escalated by an even greater $33,200 (+9.6%), implying that high-end homes comprised a larger share of new-home sales in December than in November. Because single-family starts increased faster than sales in December, the three-month average ratio of starts to sales jumped to 1.55; that ratio is near the upper end of the historical range, perhaps suggesting that starts may taper off unless sales pick up further. 

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As mentioned in our post on December’s housing permits, starts and completions, single-unit completions advanced by 58,000 units (+9.5%). New-home inventory expanded in absolute (+5,000 units) terms while months of inventory declined by 0.5 month. 

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Existing home sales increased in December (+120,000 units or 2.4%) to 5.04 million units (SAAR). Despite sales of new homes rising more slowly than existing homes, the share of total sales comprised of new homes rose to 8.7%. The median price of previously owned homes sold in December advanced by $2,300 (+1.1%) to $209,500. Inventory of existing homes declined in both absolute (-230,000 units) and months of inventory (4.4 months).

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Housing affordability improved slightly in November as the median price of existing homes for sale fell by $1,800 (-0.9%) to $206,200. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P/Case-Shiller Home Price indices posted a not-seasonally adjusted monthly change of less than -0.1% in November (+4.7% relative to a year earlier).

“With the spring home buying season, and spring training, still a month or two away, the housing recovery is barely on first base,” said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Prospects for a home run in 2015 aren’t good. Strong price gains are limited to California, Florida, the Pacific Northwest, Denver, and Dallas. Most of the rest of the country is lagging the national index gains. Moreover, these price patterns have been in place since last spring. Existing home sales were lower in 2014 than 2013, confirming these trends.

“Difficulties facing the housing recovery include continued low inventory levels and stiff mortgage qualification standards. Distressed sales and investor purchases for buy-to-rent declined somewhat in the fourth quarter. The best hope for housing is the rest of the economy where the news is better. 2014 was a good year for job creation and weekly unemployment claims – good short term indicators – which continue to provide upbeat reports. Consumer confidence, helped by cheap gasoline prices, is strong, and a good GDP number is expected this week.” 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.