October 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in October 2017 were at a seasonally adjusted annual rate (SAAR) of 685,000 units (620,000 expected). This is 6.2% (±18.0%)* above the revised September rate of 645,000 (originally 667,000 units) and 18.7% (±23.5%)* above the October 2016 SAAR of 577,000 units; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +19.6%. For longer-term perspectives, sales were 50.7% below the “housing bubble” peak and 5.2% above the long-term, pre-2000 average.

The median sales price of new houses sold was $312,800 (-$12,100 or 3.7% MoM); meanwhile, the average sales price set a new record of $400,200 (+$19,100 or 5.0%). Declining median and rising average prices suggest much of the sales activity was at the upper end of the price spectrum; indeed, sales of homes priced at or above $400,000 were at their highest since August 2006. Starter homes (defined here as those priced below $200,000) comprised 12.7% of the total sold, down from the year-earlier 17.4%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 3.6% of those sold in October, up from the year-earlier (2.2%).

* 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 20,000 units (+2.6%). The increase in completions was eclipsed by that of sales (+40,000 units; +6.2%); oddly, new-home inventory expanded in absolute terms (+4,000 units) while contracting in months-of-inventory terms (-0.3 month). 

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Existing home sales rose by 110,000 units (+2.0%) in October, to a SAAR of 5.480 million units (5.425 million expected). Inventory of existing homes shrank in both absolute (-60,000 units) and months-of-inventory (-0.3 month) terms. Because new-home sales increased proportionally more quickly than existing-home sales, the share of total sales comprised of new homes ticked higher, to 11.1%. The median price of previously owned homes sold in October decreased by $600 (-0.2% MoM). 

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Housing affordability improved marginally as the median price of existing homes for sale in September fell by $8,000 (-3.1%; +4.2 YoY), to $246,800. 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% (+6.2% YoY) -- marking a new all-time high for the index.

“Home prices continued to rise across the country with the S&P CoreLogic Case-Shiller National Index rising at the fastest annual rate since June 2014,” says David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Home prices were higher in all 20 cities tracked by these indices compared to a year earlier; 16 cities saw annual price increases accelerate from last month. Strength continues to be concentrated in the west with Seattle, Las Vegas, San Diego and Portland seeing the largest gains. The smallest increases were in Atlanta, New York, Miami, Chicago and Washington. Eight cities have surpassed their pre-financial crisis peaks.”

“Most economic indicators suggest that home prices can see further gains. Rental rates and home prices are climbing, the rent-to-buy ratio remains stable, the average rate on a 30-year mortgage is still under 4%, and at a 3.8-month supply, the inventory of homes for sale is still low. The overall economy is growing with the unemployment rate at 4.1%, inflation at 2% and wages rising at 3% or more. One dark cloud for housing is affordability -- rising prices mean that some people will be squeezed out of the market.” 

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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.