January 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in January 2017 were at a seasonally adjusted annual rate (SAAR) of 555,000 units (576,000 expected). This is 3.7% (±18.5 percent)* above the revised December rate of 535,000 (originally 536,000) and is 5.5% (±25.4 percent)* above the January 2016 SAAR of 526,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was 5.1%. For a longer-term perspective, January sales were 60.0% below the “bubble” peak and 21.6% below the long-term, pre-2000 average.

The median sales price of new houses sold in January was $312,900 (-$3,300 or -1.0%). The average sales price was $360,900 (-$18,000 or -4.8%). Starter homes (those priced below $200,000) comprised 14.6% of the total sold, down from January 2016’s 23.1%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 4.9% of those sold in January, a slight bump from January 2016’s record-low (for that month of the year, going back to 2002) of 2.6%

* 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 rose by 33,000 units (+4.3%). Because the increase in completions outpaced that of sales, new-home inventory expanded in absolute (+9,000 units) terms but remained stable in months-of-inventory terms. 

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Existing home sales jumped by 180,000 units (+3.3%) in January, to a decade-high 5.690 million units (SAAR), above expectations of 5.575 million. Inventory of existing homes expanded in absolute (+40,000 units), but remained stable in months-of-inventory terms. Although the rise in existing-home sales exceeded that of new homes in January, the share of total sales comprised of new homes inched up by less than 0.1%, to 8.9%. The median price of previously owned homes sold in January retreated by $4,400 (-1.9%), to $228,900. 

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Housing affordability degraded marginally despite the median price of existing homes for sale in December falling by $2.500 (-1.1%; +3.8 YoY), to $233,500. 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% (+5.9% YoY), bringing home prices to a new all-time high.

“Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “With all 20 cities seeing prices rise over the last year, questions about whether this is a normal housing market or if prices could be heading for a fall are natural. In comparing current home price movements to history, it is necessary to adjust for inflation. Consumer prices are higher today than 20 or 30 years ago, while the inflation rate is lower. Looking at real or inflation-adjusted home prices based on the S&P CoreLogic Case-Shiller National Index and the Consumer Price Index, the annual increase in home prices is currently 3.8%. Since 1975, the average pace is 1.3%; about two-thirds of the time, the rate is between -4% and +7%. Home prices are rising, but the speed is not alarming.

“One factor behind rising home prices is low inventory. While sales of existing single family homes passed five million units at annual rates in January, the highest since 2007, the inventory of homes for sales remains quite low with a 3.6 month supply. New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990. Another factor supporting rising home prices is mortgage rates. A 30-year fixed rate mortgage today is 4.2% compared to the 6.4% average since 1990. Another indicator that home price levels are normal can be seen in the charts of Seattle and Portland OR. In the boom-bust of 2005-2009, prices of low, medium, and high-tier homes moved together, while in other periods, including now, the tiers experienced different patterns.” 

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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.