March 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes tumbled in March, falling by 62,000 units (-11.4%) relative to the previous month, to a seasonally adjusted and annualized rate (SAAR) of 481,000 (well below the 518,000 expected). Prior to 2015, sales had been essentially flat (averaging 435,000) since January 2013. Sales in March were 15.4% above year-earlier levels; year-to-date (YTD), sales were 20.6% above the same months in 2014.

Meanwhile, the median price of new homes sold fell by $4.200 (-1.5%) to $277,400. The average price of homes sold retreated by a more modest $2,200 (-0.6%). Because single-family starts increased while sales decreased, the three-month average ratio of starts to sales slumped to 1.24, significantly below the average (1.41) since January 1995. 

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As mentioned in our post on March’s housing permits, starts and completions, single-unit completions increased by 5,000 units (+0.8%). The drop in sales and rise in completions resulted in new-home inventory expanding in both absolute (+4,000 units) and months-of-inventory (+0.7 months) terms. 

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Existing home sales jumped in March (+300,000 units or 6.1%) to 5.19 million units (SAAR), an 18-month high; expectations were for an increase to 5.045 million. Because sales of existing homes increased while new homes fell, the share of total sales comprised of new homes dropped back to 8.5%. The median price of previously owned homes sold in March rose by $10,200 (+5.1%) to $212,100. Inventory of existing homes expanded in absolute terms (+1,000 units), but contracted in months of inventory terms (to 4.6 months). 

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Housing affordability was essentially unchanged in February although the median price of existing homes for sale rose by $5,600 (+2.8%) to $204,200. 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 +0.1% in February (+4.2% relative to a year earlier).

“Home prices continue to rise and outpace both inflation and wage gains,” said David Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. “The S&P/Case-Shiller National Index has seen 34 consecutive months with positive year-over-year gains; all 20 cities have shown year-over-year gains every month since the end of 2012. While prices are certainly rebounding, only two cities -- Denver and Dallas -- have surpassed their housing boom peaks. Nationally, prices are almost 10% below the high set in July 2006. Las Vegas fell 61.7% peak to trough and has the farthest to go to set a new high; it is 41.5% below its high. If a complete recovery means new highs all around, we’re not there yet.

“A better sense of where home prices are can be seen by starting in January 2000, before the housing boom accelerated, and looking at real or inflation adjusted numbers. Based on the S&P/Case-Shiller National Home Price Index, prices rose 66.8% before adjusting for inflation from January 2000 to February 2015; adjusted for inflation, this is 27.9% or a 1.7% annual rate. The highest price gain over the last 15 years was in Los Angeles with a 4.3% real annual rate; the lowest was Detroit with a -3.6% real annual rate. While nationally, prices are recovering, new construction of single family homes remains very weak despite low vacancy rates among both renters and owner-occupied homes.” 

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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.