May 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in May 2016 were at a seasonally adjusted annual rate (SAAR) of 551,000 -- below expectations of 565,000. That was 6.0 percent (±12.8%)* below the revised April rate of 586,000 (originally 619,000 units), but 8.7 percent (±14.6%)* above the May 2015 SAAR of 507,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +8.5%. For a longer-term perspective, May’s sales were roughly 60% below the “bubble” peak and also about 3% below the long-term, pre-2000 average.

Although single-family starts nudged upward in May, the significant drop in starts during March caused the three-month average ratio of starts to sales drop to 1.38 -- below above the average (1.41) since January 1995.

The median price of new houses sold in May 2016 retreated by $29,800 from April’s all-time high, to $290,400; the average sales price was $358,900 (-$19,300). Starter homes (those priced below $200,000) made up 17.7% of the total sold in May, the lowest proportion on record for that calendar month (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 May, single-unit completions rose by 16,000 units (+2.3%). Because completions increased while sales decreased, new-home inventory expanded in both absolute (+3,000 units) and months-of-inventory (0.4 month) terms. 

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Existing home sales rose in May (+100,000 units or 1.8%) to 5.53 million units (SAAR), essentially on par with expectations of 5.57 million. Inventory of existing homes expanded in absolute terms (+30,000 units) but months-of-inventory was unchanged. Because new-home sales declined while existing-home sales increased, the share of total sales comprised of new homes fell to 9.1%. The median price of previously owned homes sold in May advanced by $8,800 (+3.8%), to a new all-time high of $239,700. 

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Housing affordability deteriorated as the median price of existing homes for sale in April increased by another $10,600 (+4.8%; +6.28% YoY) to $233,700. 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 +1.1% (+5.0% YoY).

“The housing sector continues to turn in a strong price performance with the S&P/Case-Shiller National Index rising at a 5% or greater annual rate for six consecutive months,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The home price increases reflect the low unemployment rate, low mortgage interest rates, and consumers’ generally positive outlook. One result is that an increasing number of cities have surpassed the high prices seen before the Great Recession. Currently, seven cities -- Denver, Dallas, Portland OR, San Francisco, Seattle, Charlotte, and Boston -- are setting new highs.

“However, the outlook is not without a lot of uncertainty and some risk. Last week’s vote by Great Britain to leave the European Union is the most recent political concern while the U.S. elections in the fall raise uncertainty and will distract home buyers and investors in the coming months. The details in the S&P/Case-Shiller Home Price data also hint at possible softness. Seasonally adjusted figures in the report show that three cities saw lower prices in April compared to only one city in March. Among the 20 cities, 16 saw either declines or smaller increases in monthly prices in the seasonally adjusted numbers.” 

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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.