December 2017 Residential Sales, Inventory and Prices

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Sales of new single-family houses in December 2017 were at a seasonally adjusted annual rate (SAAR) of 625,000 units (683,000 expected). This is 9.3% (±11.0%)* below the revised November rate of 689,000 (originally 733,000 units), but is 14.1% (±13.0%) above the December 2016 SAAR of 548,000 units; the not-seasonally adjusted year-over-year comparison (shown in the table above) was +10.3%. For longer-term perspectives, not-seasonally adjusted sales were 55.0% below the “housing bubble” peak and 17.8% below the long-term, pre-2000 average.

An estimated 608,000 new homes were sold in 2017. This is 8.4% (±4.1%) above the 2016 figure of 561,000.

The median sales price of new houses sold in December 2017 was $335,400 (+$500 or 0.2% MoM); meanwhile, the average sales price jumped to $398,900 (+$15,300 or 4.0%). Starter homes (defined here as those priced below $200,000) comprised 18.6% of the total sold, up from the year-earlier 12.8%; prior to the Great Recession starter homes represented as much as 61% of total new-home sales. Homes priced below $150,000 made up 4.7% of those sold in December, up from the year-earlier 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 December, single-unit completions rose by 34,000 units (+4.3%). The combination of increasing completions and falling sales (64,000 units; -8.3%) caused months of inventory to expand in both absolute and months-of-inventory terms (11,000 units; +0.8 month). 

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Existing home sales fell by 210,000 units (-3.6%) in December, to a SAAR of 5.570 million units (5.75 million expected). Nonetheless, inventory of existing homes shrank in both absolute (-190,000 units) and months-of-inventory (-0.3 month) terms. Because new-home sales decreased proportionally more quickly than existing-home sales, the share of total sales comprised of new homes declined, to 10.1%. The median price of previously owned homes sold in December retreated to $246,800 (-$400 or 0.2% MoM). 

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Housing affordability eroded marginally as the median price of existing homes for sale in November rose by $1,600 (+0.6%; +5.4 YoY), to $248,800. 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 +0.2% (+6.2% YoY) -- marking a new all-time high for the index.

“Home prices continue to rise three times faster than the rate of inflation,” says David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months. Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices. Construction costs, as measured by National Income and Product Accounts, recovered after the financial crisis, increasing between 2% and 4% annually, but do not explain all of the home price gains. From 2010 to the latest month of data, the construction of single family homes slowed, with single family home starts averaging 632,000 annually. This is less than the annual rate during the 2007-2009 financial crisis of 698,000, which is far less than the long-term average of slightly more than one million annually from 1959 to 2000 and 1.5 million during the 2001-2006 boom years. Without more supply, home prices may continue to substantially outpace inflation.”

“Looking across the 20 cities covered here, those that enjoyed the fastest price increases before the 2007-2009 financial crisis are again among those cities experiencing the largest gains. San Diego, Los Angeles, Miami and Las Vegas, price leaders in the boom before the crisis, are again seeing strong price gains. They have been joined by three cities where prices were above average during the financial crisis and continue to rise rapidly – Dallas, Portland OR, and Seattle.” 

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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.