December 2015 Residential Sales, Inventory and Prices

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Sales of new single-family houses in December were at a seasonally adjusted annual rate (SAAR) of 544,000 units (besting the 500,000 units expected), an increase of 53,000 units or 10.8% (±17.1%)* above the revised November rate of 491,000 units. December’s sales activity was also 9.9% (±25.0%)* above the December 2014 SAAR of 495,000 units; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +8.6%. For all of 2015, sales were 13.7% higher than 2014.

For a longer perspective, December sales were roughly 61% below the “bubble” peak and about 27% below the long-term, pre-2000 average. Because sales increased while single-family starts declined, the three-month average ratio of starts to sales fell to 1.50 -- above the average (1.41) since January 1995. It is interesting to note that, despite the December rebound, sales trended lower since February 2015 while starts have trended upward.

Meanwhile, the median price of new homes sold fell by $8,100 (-2.7%), to $288,900 in December. The average price of homes sold tumbled by $17,800 (-4.8%), to $346,400. Even with the outsized decrease in the average price, the proportion of “starter” homes (those priced below $200,000) was the lowest (18.4%) of any December on record (going back to 2002); prior to the Great Recession starter homes comprised as much as a 61% share of total sales.

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero. 

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As mentioned in our post about housing permits, starts and completions in December, single-unit completions jumped by 56,000 units (+8.7%). Because the absolute increase in sales was similar in size, new-home inventory expanded in absolute terms (+6,000 units) but shrank in months-of-inventory (-0.4 month) terms. 

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Existing home sales rebounded in December (+700,000 units or 14.7%) to 5.46 million units (SAAR); that result was considerably above expectations of 5.20 million. Inventory of existing homes contracted in both absolute (-250,000 units) and months-of-inventory (-1.2 months) terms -- to near their lowest levels since before the housing crash. Because the increase of existing home sales outpaced that of new sales, the share of total sales comprised of new homes dropped to 9.1%. The median price of previously owned homes sold in December continued higher (+$4,100 or 1.9%), to $224,100. 

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Housing affordability improved marginally in November despite the median price of existing homes for sale rising by $1,000 (+0.4%) to $221,600. 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 +0.1% (+5.3% compared to a year earlier).

“Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Sales of existing homes were up 6.5% in 2015 vs. 2014, and the number of homes on the market averaged about a 4.8 months’ supply during the year; both numbers suggest a seller’s market. The consumer portion of the economy is doing well; like housing, automobile sales were quite strong last year. Other parts of the economy are not faring as well. Businesses in the oil and energy sectors are suffering from the 75% drop in oil prices in the last 18 months. Moreover, the strong U.S. dollar is slowing exports. Housing is not large enough to offset all of these weak spots.

“Home prices continue to recover from the collapse that began before the recession of 2007-2009 and continued until 2012. Three cities – Dallas, Denver and Portland OR – have reached new all-time highs; San Francisco is even with its earlier peak and Charlotte NC is less than 1% below its previous peak. The S&P/Case-Shiller National Home Price Index is about 4.8% below the peak it set in July 2006, and 29.2% above the bottom it touched in January 2012. By comparison, the S&P 500 as of Friday, January 22nd is up 46% from January 2012 -- better than the S&P/Case-Shiller National Home Price series and about the same as Los Angeles.” 

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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.