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Tuesday, October 27, 2015

September 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes turned lower in September, falling by 61,000 units (-11.5%), to a seasonally adjusted and annualized rate (SAAR) of 468,000 units -- well below the 549,000 expected. The drop was in addition to downward revisions to July and August data (combined -27,000 units), and resulted in the largest month-to-month retreat since July 2013 and the first year-over-year decline in not seasonally adjusted sales since November 2014. Year-to-date (YTD), sales were 16.7% above the same months in 2014. For perspective, September sales were roughly 66% below the “bubble” peak and about 31% below the long-term, pre-2000 average.
Meanwhile, the median price of new homes sold jumped by $7,800 (+2.7%) to $296,900. The average price of homes sold, by contrast, leapt by a more robust $21,100 (+6.2%) -- to $364,100 -- implying that a significant proportion of total sales were high-end homes. Because sales decreased while single-family starts increased, the three-month average ratio of starts to sales rose to 1.50 -- above the average (1.41) since January 1995. 
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As mentioned in our post about housing permits, starts and completions in September, single-unit completions fell by 12,000 units (-1.8%). Because completions retreated more slowly than sales, new-home inventory expanded in absolute terms (+10,000 units) and months of inventory (+0.9 month). 
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Existing home sales gained in September (+250,000 units or 4.7%) to 5.55 million units (SAAR); that result was above expectations of 5.35 million. Because sales of new homes fell while existing homes increased, the share of total sales comprised of new homes dropped to 7.8%. The median price of previously owned homes sold in September declined another $6,600 (-2.9%) to $221,900. Inventory of existing homes contracted in both absolute (-60,000 units) and months-of-inventory terms (-0.3 month). 
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Housing affordability marginally improved in August, as the median price of existing homes for sale retreated by $3,200 (-1.4%) to $230,200. 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 +0.3% (+4.7% compared to a year earlier).
“Home prices continue to climb at a 4% to 5% annual rate across the country,” said David Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. “Most other recent housing indicators also show strength. Housing starts topped an annual rate of 1.2 million units in the latest report with continuing strength in both single family homes and apartments. The National Association of Home Builders sentiment survey, reflecting current strength, reached the highest level since 2005, before the housing collapse. Sales of existing homes are running about 5.5 million units annually with inventories of about five months of sales. However, September new home sales took an unexpected and sharp drop as low inventories were cited as a possible cause.
“A notable part of today’s economy is the continuing low inflation rate; in the year to September, consumer prices were unchanged. Even excluding food and energy, the core inflation was 1.9%. One result is that a 5% price increase in the value of a house means more today than it did in 2005-2006, the peak of the housing boom when the inflation rate was higher. The rebound from the recent lows was faster than the 1997-2005 housing boom, and also much less driven by inflation.” 
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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.

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