February 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in February 2017 were at a seasonally adjusted annual rate (SAAR) of 592,000 units (565,000 expected). This is 6.1% (±17.3 percent)* above the revised January rate of 558,000 (originally 555,000) and 12.8% (±18.0 percent)* above the February 2016 SAAR of 525,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was 8.9%. For a longer-term perspective, February sales were 57.4% below the “bubble” peak and 6.3% below the long-term, pre-2000 average.

The median sales price of new houses sold in February was $296,200 (-$12,000 or -3.9%). The average sales price was $390,400 (+$35,100 or +9.9%). Starter homes (those priced below $200,000) comprised 16.3% of the total sold, up from February 2016’s 15.6%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 4.1% of those sold in February, a slight drop from February 2016’s 6.7%.

* 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 February, single-unit completions fell by 52,000 units (-6.5%). Although the decrease in completions was coupled with an increase in sales, new-home inventory expanded in absolute (+4,000 units) terms but shrank in months-of-inventory (-0.2 month) terms. 

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Existing home sales tumbled by 210,000 units (-3.7%) in February, to a SAAR of 5.480 million units (SAAR), below expectations of 5.555 million. Inventory of existing homes expanded in both absolute (+70,000 units) and months-of-inventory (+0.3 months) terms. With new-home sales increasing and existing-home sales declining, the share of total sales comprised of new homes rose to 9.7%. The median price of previously owned homes sold in February increased by $1,100 (+0.5%), to $228,400. 

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Housing affordability remained essentially unchanged despite the median price of existing homes for sale in January falling by $6,000 (-2.6%; +6.4 YoY), to $228,600. 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.

“Housing and home prices continue on a generally positive upward trend,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The recent action by the Federal Reserve raising the target for the Fed funds rate by a quarter percentage point is expected to add less than a quarter percentage point to mortgage rates in the near future. Given the market’s current strength and the economy, the small increase in interest rates isn’t expected to dampen home buying. If we see three or four additional increases this year, rising mortgage rates could become concern.

“While prices vary month-to-month and across the country, the national price trend has been positive since the first quarter of 2012. In February, the inventory of homes in the market represented 3.7 months of sales, lower than the long-term average of six months. Tight supplies and rising prices may be deterring some people from trading up to a larger house, further aggravating supplies because fewer people are selling their homes. The prices also hurt affordability as higher prices and mortgage rates shrink the number of households that can afford to buy at current price levels. At some point, this process will force prices to level off and decline – however we don’t appear to be there yet.” 

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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.