January 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in January 2016 were at a seasonally adjusted annual rate (SAAR) of 494,000 units (well below the 520,000 expected), a decrease of 50,000 units or 9.2 percent (±13.5%)* below the revised December rate of 544,000. January’s SAAR was also 5.2 percent (±12.6%)* below the January 2015 SAAR of 521,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was -5.1%.

For a longer perspective, January’s sales were roughly 64% below the “bubble” peak and about 29% below the long-term, pre-2000 average. Although sales decreased more quickly than single-family starts, the three-month average ratio of starts to sales was stable at 1.48 -- above the average (1.41) since January 1995.

Meanwhile, the median price of new homes sold fell by $17,000 (-5.7%), to $278,800 in January. The average price of homes sold, on the other hand, jumped by $18,000 (+5.2%), to $365,700. Despite the outsized increase in the average price, the proportion of “starter” homes (those priced below $200,000) edged up (by 1.1%, to 21.6% of the total) from the record (going back to 2002) January low set in 2015; 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 January, single-unit completions retreated by 10,000 units (-1.4%). Because the absolute decrease in sales exceeded that of completions, new-home inventory expanded in both absolute (+5,000 units) and months-of-inventory (+0.7 month) terms. 

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Existing home sales were relatively unchanged in January (+20,000 units or 0.4%) to 5.47 million units (SAAR); that sales pace was the second-fastest since 2007 and well above expectations of 5.32 million. Inventory of existing homes expanded in both absolute (+60,000 units) and months-of-inventory (+0.1 month) terms. Because existing home sales increased while new sales declined, the share of total sales comprised of new homes dropped to 8.3%. The median price of previously owned homes sold in January fell by $9,400 (-4.2%), to $213,800. 

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Housing affordability declined in December as the median price of existing homes for sale rose by $4,600 (+2.1%; +8.1% YoY) to $226,000. 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% (+5.4% YoY).

“While home prices continue to rise, the pace is slowing a bit,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Seasonally adjusted, Miami had lower prices this month than last and 10 other cities saw smaller increases than last month. Year-over-year, seven cities saw the rate of price increases wane. Even with some moderation, home prices in all but one city are rising faster than the 2.2% year-over-year increase in the CPI core rate of inflation.

“Sparked by the stock market’s turmoil since the beginning of the year, some are concerned that the current economic expansion is aging quite rapidly. The recovery is six years old, but recoveries do not typically die of old age. Housing construction, like much of the economy, got off to a slow start in 2009-2010 and is only now beginning to show some serious strength. Continued increases in prices of existing homes, as shown in the S&P/Case-Shiller Home Price Indices, should encourage further activity in new construction. Total housing starts have stayed above an annual rate of one million starts per year since last March and single family home have been higher than 700,000 units at annual rates since June. Housing investment continues its positive contribution to GDP growth.” 

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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.