May 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in May 2017 were at a seasonally adjusted annual rate (SAAR) of 610,000 units (590,000 expected). This is 2.9% (±13.0%)* above the revised April rate of 593,000 and 8.9% (±21.9%)* above the May 2016 SAAR of 560,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +9.4%. For a longer-term perspective, April sales were 56.1% below the “bubble” peak but 10.9% above the long-term, pre-2000 average.

The median sales price of new houses sold in May 2017 was $345,800 (+$35,600 or 11.5% MoM). The average sales price was $406,400 (+$38,700 or 10.5% MoM). Starter homes (those priced below $200,000) comprised 13.8% of the total sold, down from May 2016’s 20.8%, and a new record low for the month of May (since 2002); prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 3.5% of those sold in May, also a new record low for that month of the year.

* 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 38,000 units (+4.9%). Since the increase in completions outpaced that of sales, new-home inventory expanded in absolute terms (+4,000 units) but remained unchanged in months-of-inventory terms. 

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Existing home sales edged up by 60,000 units (+1.1%) in May, to a SAAR of 5.620 million units (5.550 million expected). Inventory of existing homes expanded in both absolute (+40,000 units) and months-of-inventory (+0.1 month) terms. With new-home sales increasing at a proportionately faster rate than existing-home sales, the share of total sales comprised of new homes rose to 9.8%. The median price of previously owned homes sold in May increased by $7,800 (+3.2% MoM), to $252,800. 

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Housing affordability deteriorated for a sixth month as the median price of existing homes for sale in April jumped by $8,100 (+3.4%; +6.1 YoY), to $246,100. 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 +0.9% (+5.5% YoY) -- marking the fifth consecutive all-time high for the index.

“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” said David Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four- month supply. Adding to price pressures, mortgage rates remain close to 4% and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.” 

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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.