June 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes declined in June (-35,000 units or 6.8%), to a seasonally adjusted and annualized rate (SAAR) of 482,000 (well below the 550,000 expected). Sales in June were 18.4% above year-earlier levels; year-to-date (YTD), sales were 20.3% above the same months in 2014.

Meanwhile, the median price of new homes sold edged up by $1,300 (+0.5%) to $281,800. The average price of homes sold, on the other hand, dropped by $7,200 (-2.1%). Because sales decreased more quickly than single-family starts, the three-month average ratio of starts to sales rose to 1.39 -- below the average (1.41) since January 1995. 

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As mentioned in our post on June’s housing permits, starts and completions, single-unit completions fell by 2,000 units (-0.3%). Because the drop in sales exceeded the drop in completions, new-home inventory expanded in both absolute terms (7,000 units) and months of inventory (+0.6 month). 

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Existing home sales rose again in June (+170,000 units or 3.2%) to 5.49 million units (SAAR); that result was slightly above expectations of 5.40 million, and the fastest pace in eight years. Because sales of existing homes increased while new homes fell, the share of total sales comprised of new homes dropped to 8.1%. The median price of previously owned homes sold in June climbed by $7,500 (+3.3%) to a record-high $236,400. Inventory of existing homes expanded in absolute terms (+20,000 units) but months-of-inventory shrank (-0.1 month). 

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Housing affordability suffered in May, as the median price of existing homes for sale jumped by $10,300 (+4.7%) to $230,300 (within $600 of the record set back in July 2006). 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 +1.1% in April (+4.4% relative to a year earlier).

“As home prices continue rising, they are sending more upbeat signals than other housing market indicators,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Nationally, single family home price increases have settled into a steady 4-5% annual pace following the double-digit bubbly pattern of 2013. Over the next two years or so, the rate of home price increases is more likely to slow than to accelerate. Prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust. Housing starts are only at about 1.2 million units annually, and only about half of total starts are single family homes. Sales of new homes are low compared to sales of existing homes.

“First time homebuyers are the weak spot in the market. First time buyers provide the demand and liquidity that supports trading up by current home owners. Without a boost in first timers, there is less housing market activity, fewer existing homes being put on the market, and more worry about inventory. Research at the Atlanta Federal Reserve Bank argues that one should not blame millennials for the absence of first time buyers. The age distribution of first time buyers has not changed much since 2000; if anything, the median age has dropped slightly. Other research at the New York Fed points to the size of mortgage down payments as a key factor. The difference between a 5% and 20% down payment, particularly for people who currently rent, has a huge impact on buyers’ willingness to buy a home. Mortgage rates are far less important to first time buyers than down payments.” 

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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.