August 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes increased for a second month in August, rising 30,000 units (+5.7%), to a seasonally adjusted and annualized rate (SAAR) of 552,000 -- well above the 515,000 expected and the fastest rate of sales since February 2008. Sales in August were 25.0% above year-earlier levels; year-to-date (YTD), sales were 19.8% above the same months in 2014. For perspective, however, August sales were roughly 60% below the “bubble” peak and about 13% below the long-term, pre-2000 average.

Meanwhile, the median price of new homes sold rose by a relatively modest $1,600 (+0.6%) to $292,700. The average price of homes sold, on the other hand, jumped by a more robust $8,600 (+2.5%) -- to $353,400 -- implying that a significant proportion of total sales were high-end homes. Because sales increased while single-family starts declined, the three-month average ratio of starts to sales dropped back to 1.42 -- on par with the average (1.41) since January 1995. 

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As mentioned in our post about housing permits, starts and completions in August, single-unit completions rose by 10,000 units (+1.6%). Although completions rose more slowly than sales, new-home inventory expanded in absolute terms (+1,000 units) but declined in months of inventory (-0.2 month). 

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Existing home sales tumbled in August (-270,000 units or 4.8%) to 5.31 million units (SAAR); that result was below expectations of 5.50 million. Because sales of existing homes fell while new homes increased, the share of total sales comprised of new homes rose to 9.4%. The median price of previously owned homes sold in August declined another $3,100 (-1.3%) to $228,700. Inventory of existing homes expanded in both absolute (+30,000 units) and months-of-inventory terms (+0.3 month). 

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Housing affordability worsened in July, even though the median price of existing homes for sale retreated by $2,400 (-1.0%) to $235,500. 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 +0.7% (+4.7% compared to a year earlier).

“Prices of existing homes and housing overall are seeing strong growth and contributing to recent solid growth for the economy,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The S&P/Case Shiller National Home Price Index has risen at a 4% or higher annual rate since September 2012, well ahead of inflation. Most of the strength is focused on states west of the Mississippi. The three cities with the largest cumulative price increases since January 2000 are all in California: Los Angeles (138%), San Francisco (116%) and San Diego (115%). The two smallest gains since January 2000 are Detroit (3%) and Cleveland (10%). The Sunbelt cities -- Miami, Tampa, Phoenix and Las Vegas -- which were the poster children of the housing boom have yet to make new all-time highs.

“The economy grew at a 3.9% real annual rate in 2Q2015 with housing making a major contribution. Residential investment grew at annual real rates of 9-10% in the last three quarters (4Q2014-2Q2015), far faster than total GDP. Further, expenditures on furniture and household equipment, a sector that depends on home sales and housing construction, also surpassed total GDP growth rates. Other positive indicators of current and expected future housing activity include gains in sales of new and existing housing and the National Association of Home Builders sentiment index. An interest rate increase by the Federal Reserve, now expected in December by many analysts, is not likely to derail the strong housing performance.” 

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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.