March 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in March 2016 were at a seasonally adjusted annual rate (SAAR) of 511,000 units, below expectations of 522,000. That level of activity was 1.5% (±15.0%)* below the revised February rate of 519,000 units (originally 512,000), but 5.4% (±16.0%)* below the year-earlier SAAR of 485,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +4.3%.

For a longer perspective, March’s sales were roughly 63% below the “bubble” peak and about 8% below the long-term, pre-2000 average. Although single-family starts decreased more quickly than sales, the three-month average ratio of starts to sales rose to 1.53 -- above the average (1.41) since January 1995.

The median price of new houses sold in March slid by $9,400 (-3.2%), to $288,000; the average price, on the other hand, jumped by $14,100 (+4.1%), to $356,200. Starter homes (those priced below $200,000) made up 18.8% of the total sold in March, marginally higher than March 2015’s record low (going back to 2002) of 17.4%; prior to the Great Recession starter homes comprised as much as a 61% share of total sales. If there is anything positive to be gleaned from the sales data, it is that the proportion of total sales represented by the lowest “rung” (i.e., homes prices below $150,000) was near triple year-earlier levels (6.3% in March 2016 versus 2.2% in March 2015).

* 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 March, single-unit completions retreated by 2,000 units (-0.3%). Because the absolute decrease in sales exceeded that of completions, new-home inventory expanded in both absolute (+5,000 units) and months-of-inventory (0.2 month) terms. 

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Existing home sales rose in March (+260,000 units or 5.1%) to 5.33 million units (SAAR), exceeding expectations of 5.27 million. Inventory of existing homes expanded in both absolute (+100,000 units) and months-of-inventory (+0.1 month) terms. Because new home sales fell while existing sales rose, the share of total sales comprised of new homes retreated to 8.7%. The median price of previously owned homes sold in March jumped by $10,600 (+5.0%), to $222,700. 

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Housing affordability improved as the median price of existing homes for sale in February dropped by another $2,500 (-1.2%; +4.3% YoY) to $212,300. 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% (+5.3% YoY).

“Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The year-over-year figures for the 10-City and 20-City Composites both slowed and 13 of the 20 cities saw slower year-over-year numbers compared to last month. The slower growth rate is evident in the monthly seasonally adjusted numbers: six cities experienced smaller monthly gains in February compared to January, when no city saw growth. Among the six were Seattle, Portland OR, and San Diego, all of which were very strong last time.

“Mortgage defaults are an important measure of the health of the housing market. Memories of the financial crisis are dominated by rising defaults as much as by falling home prices. Today as well, the mortgage default rate continues to mirror the path of home prices. Currently, the default rate on first mortgages is about three-quarters of one percent, a touch lower than in 2004. Moreover, the figure has drifted down in the last two years. While financing is not an issue for home buyers, rising prices are a concern in many parts of the country. The visible supply of homes on the market is low at 4.8 months in the last report. Homeowners looking to sell their house and trade up to a larger house or a more desirable location are concerned with finding that new house. Additionally, the pace of new single family home construction and sales has not completely recovered from the recession.” 

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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.