October 2015 Residential Sales, Inventory and Prices

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Sales of new single-family homes clawed back some of the ground lost in September (-66,000 units), rising by 48,000 units (+10.7%) in October to a seasonally adjusted and annualized rate (SAAR) of 495,000 units -- near the 499,000 expected. Year-to-date (YTD), sales were 15.0% above the same months in 2014. For perspective, October sales were roughly 64% below the “bubble” peak and about 22% below the long-term, pre-2000 average.

Meanwhile, the median price of new homes sold slumped by $26,300 (-8.5%) from September’s all-time nominal high (upwardly revised from $296,900 to $307,800), to $281,000 in October. The average price of homes sold, by contrast, slipped by just $3,600 (-1.0%) -- to $366,000 -- implying that a significant proportion of total sales were high-end homes. The proportion of “starter” homes (those priced below $200,000) is the lowest (19.5%) of any October on record (going back to 2002); in the past starter homes comprised as much as a 61% share of total sales. Because sales increased while single-family starts decreased, the three-month average ratio of starts to sales fell to 1.51 -- above the average (1.41) since January 1995. 

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As mentioned in our post about housing permits, starts and completions in October, single-unit completions edged down by 3,000 units (-0.5%). Despite the divergence between completions and sales, new-home inventory expanded in absolute terms (+3,000 units) but shrank in months-of-inventory (-0.5 month) terms. 

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Existing home sales retreated in October (-190,000 units or 3.4%) to 5.36 million units (SAAR); that result was below expectations of 5.40 million. Inventory of existing homes contracted in absolute (-50,000 units) terms but expanded in months-of-inventory terms (+0.1 month). Because sales of new homes rose while existing homes fell, the share of total sales comprised of new homes increased to 8.5%. The median price of previously owned homes sold in October declined for a fourth month (-$2,100 or 1.0%), to $219,600. 

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Housing affordability improved again in September, as the median price of existing homes for sale retreated by $6,500 (-2.8%) to $223,500. 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 +0.2% (+4.8% compared to a year earlier).

“Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The general economy appeared to slow slightly earlier in the fall, but is now showing renewed strength. With unemployment at 5% and hints of higher inflation in the CPI, most analysts expect the Federal Reserve to raise its Fed Funds target range to 25 to 50 basis points, the first increase since 2006. While this will make news, it is not likely to push mortgage rates far above the recent level of 4% on 30-year conventional loans. In the last year, mortgage rates have moved in a narrow range as home prices have risen; it will take much more from the Fed to slow home price gains. 

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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.