October 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in October 2016 were at a seasonally adjusted annual rate (SAAR) of 563,000 (590,000 expected). That is 1.9 percent (±13.1%)* below the revised September rate of 574,000 (originally 593,000 units), but 17.8 percent (±16.9%) above the October 2015 SAAR of 478,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +15.4%. For a longer-term perspective, October sales were 59.5% below the “bubble” peak and 13.9% below the long-term, pre-2000 average.

The median sales price of new houses sold in October dropped by $9,600 to $304,500; the average sales price fell by roughly the same amount: -$9,200 (to $354,900). Starter homes (those priced below $200,000) comprised 22.2% of the total sold, up from October 2015’s record-low 15.4% for that calendar month (going back to 2002); prior to the Great Recession starter homes represented as much as 61% of total sales. Homes priced below $150,000 made up 4.4% of those sold in October, a further slide from October 2015’s previous record-low share of 5.1%.

* 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 October, single-unit completions rose by 28,000 units (+3.9%). Because completions increased while sales declined, new-home inventory expanded in both absolute (+7,000 units) and months of inventory (+0.2 month) terms. 

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Existing home sales increased by 110,000 units (+2.0%) in October, to 5.60 million units (SAAR), well above expectations of 5.35 million. Inventory of existing homes shrank in both absolute (-10,000 units) and months-of-inventory (-0.1 month) terms. Because existing-home sales increased while new-home sales declined, the share of total sales comprised of new homes shrank to 9.1%. The median price of previously owned homes sold in October fell by $3,100 (-1.3%), to $232,200. 

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Housing affordability marginally improved as the median price of existing homes for sale in September fell by $6,200 (-2.6%; but +5.6 YoY), to $235,700. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P Case-Shiller CoreLogic Home Price indices posted a not-seasonally adjusted monthly change of +0.4% (+5.5% YoY), bringing home prices to a new all-time high.

“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms -- Miami, Tampa, Phoenix and Las Vegas -- remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.

“From 1975 (the earliest date for the S&P Case-Shiller CoreLogic National Index) to this report, home prices rose at an annual rate of 4.9% before adjusting for inflation. The real or inflation adjusted pace was 1.1% per year. Real disposable personal income per capita – income after inflation and taxes on a per-person basis -- rose 1.9%, outpacing home prices over the entire period. The stock market, measured by the S&P 500 adjusted for inflation, did better at 4.4% per year… We are currently experiencing the best real estate returns since the bottom in July of 2012 when prices rose at a 5.9% real annual rate. Given history, this trend is unlikely to be sustained.” 

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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.