February 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes in February climbed to their fastest pace in seven years, rising by 39,000 units (+7.8%) relative to the previous month, to a seasonally adjusted and annualized rate (SAAR) of 539,000 (well above the 462,000 expected). Prior to 2015, sales had been essentially flat (averaging 435,000) since January 2013. Sales in February were 25.7% above year-earlier levels; year-to-date (YTD), sales were 19.1% above the same months in 2014.

Meanwhile, the median price of new homes sold tumbled by $13,900 (-4.8%) to $275,600. The average price of homes sold retreated by a relatively negligible $3,100 (-0.9%). Because single-family starts decreased while sales increased, the three-month average ratio of starts to sales slumped to 1.34, back below the average (1.41) since January 1995. 

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As mentioned in our post on February’s housing permits, starts and completions, single-unit completions retreated by 82,000 units (-12.1%). The jump in sales and drop in completions resulted in new-home inventory shrinking in both absolute (-3,000 units) and months-of-inventory (-0.4 months) terms. 

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Existing home sales edged higher in February (+60,000 units or 1.2%) to 4.88 million units (SAAR); expectations were for an increase to 4.94 million. Because sales of new homes increased more quickly than existing homes, the share of total sales comprised of new homes jumped to 9.9% (the largest share since July 2008). The median price of previously owned homes sold in February rose by $5,000 (+2.5%) to $202,600. Inventory of existing homes expanded in absolute terms (+30,000 units), but months of inventory remained stable at 4.6 months. 

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Housing affordability jumped in January as the median price of existing homes for sale fell by $9,400 (-4.5%) to $199,800. 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 -0.1% in January (+4.5% relative to a year earlier).

“The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices” said David Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. “Regional patterns in recent months continue: strength in the west and southwest paced by Denver and Dallas with results ahead of the national index in the California cities, the Pacific Northwest and Las Vegas. The northeast and Midwest are mostly weaker than the national index.

“Despite price gains, the housing market faces some difficulties. Home prices are rising roughly twice as fast as wages, putting pressure on potential homebuyers and heightening the risk that any uptick in interest rates could be a major setback. Moreover, the new home sector is weak; residential construction is still below its pre-crisis peak. Any time before 2008 that housing starts were as low as the current rate of one million, the economy was in a recession.” 

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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.