December 2016 Residential Sales, Inventory and Prices

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Sales of new single-family houses in December 2016 were at a seasonally adjusted annual rate (SAAR) of 536,000 units (590,000 expected). This is 10.4 percent (±12.2%)* below the revised November rate of 598,000 (originally 592,000) and is 0.4 percent (±11.7%)* below the December 2015 SAAR of 538,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was unchanged. For a longer-term perspective, December sales were 61.4% below the “bubble” peak and 27.3% below the long-term, pre-2000 average.

An estimated 563,000 new homes were sold in 2016, 12.2 percent (±3.5%) above the 2015 figure of 501,000.

The median sales price of new houses sold in December 2016 was $322,500 (+$13,300 or 4.3%) -- the second-highest median price on record; the average sales price was a record $384,000 (+$18,000 or 5.2%). Starter homes (those priced below $200,000) comprised 13.2% of the total sold, down from December 2015’s previous record-low 18.4% 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 2.6% of those sold in December, a further slide from November 2015’s previous record-low share of 5.3%.

* 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 fell by 7,000 units (-0.9%). Because the decline in sales outpaced the drop in completions, new-home inventory expanded in both absolute (+10,000 units) and months-of-inventory terms (+0.8 month). 

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Existing home sales tumbled by 160,000 units (-2.8%) in December, to 5.49 million units (SAAR), below expectations of 5.538 million. Inventory of existing homes shrank in both absolute (-200,000 units) and months-of-inventory (-0.3 month) terms. Although the drop in existing-home sales exceeded that of new homes in December, the share of total sales comprised of new homes shrank to 8.9%. The median price of previously owned homes sold in December retreated by $2,200 (-0.9%), to $232,200. 

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Housing affordability degraded marginally as the median price of existing homes for sale in November edged up by $900 (+0.4%; +6.8 YoY), to $236,500. 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 +0.2% (+5.6% YoY), bringing home prices to a new all-time high.

“With the S&P CoreLogic Case-Shiller National Home Price Index rising at about 5.5% annual rate over the last two-and-a-half years and having reached a new all-time high recently, one can argue that housing has recovered from the boom-bust cycle that began a dozen years ago,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The recovery has been supported by a few economic factors: low interest rates, falling unemployment, and consistent gains in per-capita disposable personal income. Thirty-year fixed rate mortgages dropped under 4.5% in 2011 and have only recently shown hints of rising above that level. The unemployment rate at 4.7% is close to the Fed’s full employment target. Inflation adjusted per-capita personal disposable income has risen at about a 2.5% annual rate for 30 months.

“The home prices and economic data are from late 2016. The new Administration in Washington is seeking faster economic growth, increased investment in infrastructure, and changes in tax policy which could affect housing and home prices. Mortgage rates have increased since the election and stronger economic growth could push them higher. Further gains in personal income and employment may increase the demand for housing and add to price pressures when home prices are already rising about twice as fast as inflation.” 

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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.