February 2016 Residential Sales, Inventory and Prices

Click image for larger view 

Click image for larger view

Sales of new single-family houses in February 2016 were at a seasonally adjusted annual rate (SAAR) of 512,000 units, roughly in line with expectations of 510,000. That level of activity was 2.0% (±18.8%)* above the revised January rate of 502,000 units (originally 494,000), but 6.1% (±17.9%)* below the year-earlier SAAR of 545,000; the not-seasonally adjusted year-over-year comparison (shown in the table above) was -2.2%.

For a longer perspective, February’s sales were roughly 63% below the “bubble” peak and about 16% below the long-term, pre-2000 average. Because single-family starts increased more quickly than sales, the three-month average ratio of starts to sales rose to 1.52 -- above the average (1.41) since January 1995.

The median price of new houses sold in February jumped by $17,500 (+6.2%), to $301,400; interestingly, the average price tumbled by $14,500 (-4.0%), to $348,900. Although the decline in the average might lead one to conclude more starter homes (those priced below $200,000) were sold in February, in fact the proportion of such homes was the lowest (13.6%) of any February on record (going back to 2002); prior to the Great Recession starter homes comprised as much as a 61% share of total sales.

* 90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero. 

Click image for larger view

As mentioned in our post about housing permits, starts and completions in February, single-unit completions advanced by 42,000 units (+6.1%). Because the absolute increase in completions exceeded that of sales, new-home inventory expanded in absolute terms (+4,000 units) but was unchanged at 5.6 months of inventory. 

Click image for larger view

Existing home sales dropped in February (-390,000 units or 7.1%) to 5.08 million units (SAAR), well below expectations of 5.3 million. Inventory of existing homes expanded in both absolute (+60,000 units) and months-of-inventory (+0.4 month) terms. Because new home sales increased while existing sales declined, the share of total sales comprised of new homes jumped to 9.2%. The median price of previously owned homes sold in February fell by $2,900 (-1.4%), to $210,800. 

Click image for larger view

Housing affordability improved in January as the median price of existing homes for sale fell by $9,900 (-4.4%; +8.3% YoY) to $215,000. Concurrently, Standard & Poor’s reported that the U.S. National Index in the S&P/Case-Shiller Home Price indices posted a not-seasonally adjusted monthly change of -0.4% (+5.4% YoY).

“Home prices continue to climb at more than twice the rate of inflation,” said David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The low inventory of homes for sale -- currently about a five month supply -- means that would-be sellers seeking to trade-up are having a hard time finding a new, larger home. The recovery of the sale and construction of new homes has lagged the gains seen in existing home sales. This may be starting to change: starts of single family homes in February were the highest since November 2007. The single-family-home share of total housing starts was 70% in February, up from a low of 57% in June 2015, and approaching the 75-80% range seen before the housing crisis.

“While low inventories and short supply are boosting prices, financing continues to be a concern for some potential purchasers, particularly young adults and first time home buyers. The issue is availability of credit for people with substantial student or credit card debt. While rising home prices are certainly a factor deterring home purchases, individual financial positions are more important than local housing market conditions. One hopeful sign is that the home ownership rate, at 63.7% in 4Q2015, may be turning around. It is up slightly from 63.5% in 2Q2015 but far below the 2004 high of 69.1%.” 

Click image for larger view

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.