April 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes edged up in April, rising by 33,000 units (+6.8%) relative to the previous month, to a seasonally adjusted and annualized rate (SAAR) of 517,000 (slightly above the 509,000 expected). Sales had been essentially flat (averaging 427,000 units) from January 2013 through 1H2014; February 2015’s 538,000 units (SAAR) has so far not been surpassed. Sales in April were 25.6% above year-earlier levels; year-to-date (YTD), sales were 21.9% above the same months in 2014.

Meanwhile, the median price of new homes sold jumped by $11,800 (+4.1%) to $297,300. The average price of homes sold retreated by $1,800 (-0.5%). Because single-family starts increased more quickly than sales, the three-month average ratio of starts to sales nudged up to 1.28; that level is significantly below the average (1.41) since January 1995. 

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As mentioned in our post on April’s housing permits, starts and completions, single-unit completions increased by 87,000 units (+14.5%). The rise in both sales and completions resulted in new-home inventory expanding in absolute terms (+1,000 units) but months of inventory shrinking (-0.3 months). 

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Existing home sales retreated in April (-170,000 units or 3.3%) to 5.04 million units (SAAR); that result was below even the low end of Bloomberg’s consensus range of expectations (5.10 to 5.32 million). Because sales of existing homes fell while new homes increased, the share of total sales comprised of new homes bumped up to 9.3%. The median price of previously owned homes sold in April rose by $8,700 (+4.1%) to $219,400. Inventory of existing homes expanded in both absolute (+200,000 units) and months-of-inventory terms (+0.7 months). 

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Housing affordability suffered in March, as the median price of existing homes for sale rose by $10,000 (+4.9%) to $213,500. 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 +0.8% in March (+4.1% relative to a year earlier).

“Home prices have enjoyed year-over-year gains for 35 consecutive months,” said David Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. “The pattern of consistent gains is national and seen across all 20 cities covered by the S&P/Case-Shiller Home Price Indices. The longest run of gains is in Detroit at 45 months, the shortest is New York with 27 months. However, the pace has moderated in the last year; from August 2013 to February 2014, the national index gained more than 10% year-over-year, compared to 4.1% in this release.

“Given the long stretch of strong reports, it is no surprise that people are asking if we’re in a new home price bubble. The only way you can be sure of a bubble is looking back after it’s over. The average 12 month rise in inflation adjusted home prices since 1975 is about 1.0% per year compared to the current 4.1% pace, arguing for a bubble. However, the annual rate of increase halved in the last year, as shown in the first chart. Home prices are currently rising more quickly than either per capita personal income (3.1%) or wages (2.2%), narrowing the pool of future home-buyers. All of this suggests that some future moderation in home prices gains is likely. Moreover, consumer debt levels seem to be manageable. I would describe this as a rebound in home prices, not bubble and not a reason to be fearful.” 

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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.