July 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes strengthened in July (+26,000 units or 5.4%), to a seasonally adjusted and annualized rate (SAAR) of 507,000 (below the 516,000 expected). Sales in July were 22.9% above year-earlier levels; year-to-date (YTD), sales were 20.2% above the same months in 2014.

Meanwhile, the median price of new homes sold rose by $8,400 (+3.0%) to $285,900. The average price of homes sold, on the other hand, jumped by $42,000 (+13.1%), implying that a significant proportion of total sales were high-end homes. Because sales increased more slowly than single-family starts, the three-month average ratio of starts to sales rose to 1.44 -- above the average (1.41) since January 1995. 

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As mentioned in our post about housing permits, starts and completions in July, single-unit completions fell by 9,000 units (-1.4%). Although completions dropped while sales increased, new-home inventory expanded in absolute terms (4,000 units) but declined in months of inventory (-0.1 month). 

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Existing home sales rose again in July (+110,000 units or 2.0%) to 5.59 million units (SAAR); that result was slightly above expectations of 5.40 million, and the fastest pace since February 2007. Although sales of existing homes increased faster than new homes, the share of total sales comprised of new homes rose to 8.3%. The median price of previously owned homes sold in July climbed by $2,300 (-1.0%) to $234,000. Inventory of existing homes shrank in both absolute (-10,000 units) and months-of-inventory terms (-0.1 month). 

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Housing affordability suffered in June, as the median price of existing homes for sale jumped by $7,200 (+3.1%) to $237,700 (besting the record of $230,900 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 +1.0% in June (+4.5% compared to a year earlier).

“Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While prices in San Francisco and Denver are rising far faster than those in Washington DC, New York, or Cleveland, the city-to-city price patterns are little changed in the last year. Washington saw the smallest year-over-year gains in five of the last six months; San Francisco and Denver ranked either first or second of all cities in the last five months. The price gains have been consistent as the unemployment rate declined with steady inflation and an unchanged Fed policy.

“The missing piece in the housing picture has been housing starts and sales. These have changed for the better in the last few months. Sales of existing homes reached 5.6 million at annual rates in July, the strongest figure since 2007. Housing starts topped 1.2 million units at annual rates with almost two-thirds of the total in single family homes. Sales of new homes are also trending higher. These data point to a stronger housing sector to support the economy. Two possible clouds on the horizon are a possible Fed rate increase and volatility in the stock market. A one quarter-point increase in the Fed funds rate won’t derail housing. However, if the Fed were to quickly follow that initial move with one or two more rate increases, housing and home prices might suffer. A stock market correction is unlikely to do much damage to the housing market; a full blown bear market dropping more than 20% would present some difficulties for housing and for other economic sectors.” 

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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.