Equity research firm Sterne Agee released an Industry Report focusing on the homebuilding sector on Monday, June 30th. In the report, Sterne Agee analysts Jay McCanless and Annie Worthman “review the monthly existing home sales data in our coverage’s footprint to better understand supply and demand trends that may affect pricing power, competitive threats, and profitability.”

McCanless and Worth begin the report by highlighting that the Top 25 local markets represent 68.5% of total home sales in the U.S.

Home sales Homebuilders’ exposure

Top 25 completed and pending home sales beat national numbers in May

Home sales decline

Completed sales — According to the Sterne Agee report, top 25 existing home sales during May beat the national market sales with a 6.2% year-over-year (Y/Y) decline versus a 8.2% Y/Y decrease nationwide. Four of the top 25 markets showed Y/Y% improvement in closed sales, with Austin, Texas reporting the highest Y/Y growth at a robust 4.1%.

Pending sales — Only 18 of the 25 top markets provide monthly pending home sales, which represent open contracts to purchase a home that have not closed by month end. SA reports that pending sales for these 18 markets only dropped by an average of 0.3% Y/Y in May, compared to a substantial 9.4% Y/Y decline nationwide. Furthermore, eight of the 18 markets had a positive Y/Y% comparison in May, and four of these (Charleston, Denver, Jacksonville, and Sarasota) notched a third consecutive month of positive pending sales  growth.

Top 25 months to sell inventory numbers also better

Home sales sellers market

Asa general rule, housing markets with under 6 months of inventory to sell have been sellers’ markets, the kind of markets where home builders and home sellers can raise prices. That said, May’s average months to sell number was 4.1 in the Top 25 markets, above April’s 4.0 reading, but well below the national average of 5.6. More over, gross inventory in the Top 25 markets was up 12.3% Y/ Y for May, compared to a 6.0% Y/Y increase in national inventory levels. The Houston and Chicago markets reported the greatest drop off in inventory numbers, declining 8.0% and 8.4% year over year, respectively.

Average median price growth higher in top 25 markets

McCanless and Worthmam argue existing home price trends are important because builder pricing power is closely related to scarcity and local market price growth. Median year over year price growth averaged 7.7% in May for our Top 25 markets in comparison to 3.8% year over year price growth for nationwide existing home sales. Inland Empire and Las Vegas enjoyed the highest median price growth for the month, up a scintillating 15.8% and 25.5%, respectively.