December 2019 Home Sales Analysis
Thanks in part to the favorable mortgage rates and low unemployment we have been experiencing as a nation, home sales hit their high mark for the year this past December, and more house hunters are starting to work their way back into the market. According to NAR, sales of previously owned homes increased by 3.6% in December compared with November to reach an adjusted annual rate of 5.54 million.
After a slow start to the year, the second half of 2019 picked up in activity to bring the total amount of sales for the year to 5.34 million homes, keeping pace with 2018. As the economy continues to grow and rates stay low, 2020 is beginning with a lot of momentum.
Although inventory remains an issue (there was only a 3-month supply of homes on the market at the end of December), there is some encouragement that home building is picking up as housing starts hit a 13-year high in December and, according to the National Association of Home Builders, home-builder sentiment was higher than it has been since 1999.
Until the new homes are constructed, the currently limited housing stock is contributing to higher home prices, with the median sales price for an existing home in December rising to 7.8% on the year to $274,500. Inventory is even more of an issue at the cheaper end of the market, as homes priced below $100,000 declined 14.3% from December 2018.
These numbers pose a perplexing conundrum, as low inventory numbers do not typically coincide with a high sales volume. Should the number of homes on the market growth we would be seeing even more transactions and continued year over year growth.
When it comes to home price, the end of 2019 saw the pace of price acceleration slow, experts are noting the numbers seen in December could be indicating a reversal. In addition, the home sales numbers varied greatly depending on geography, with the Northeast and the South experiencing the largest growth while the Midwest actually saw their sales decrease by 1.5%.
All in all, 2020 is shaping up to be another year of strong home sales if trends are to continue, with the added possibility of explosive growth in certain areas should all these factors come together in a perfect storm.
High Tax Flight
It hasn’t been a secret for the past several years, New York, California and Illinois have been losing residents at an astonishing rate. Almost 3.2 million more people left those states for greener pastures within the United States than arrived from other states from 2010 to 2019, according to population estimates from the Census Bureau. Nine other states saw net migration negatives of more than 100,000 people over the same period, but none even came close to these three.
So, why have they been leaving? Could it be related to income?
The adjusted gross income of California taxpayers who didn’t migrate averaged $84,641 and migrants who arrived among the top-10 states in growth averaged less than that. California also experienced a net positive inflow from about half the states, so they are still attracting newcomers even as they lose their own.
Similarly, the adjusted gross income of Illinois taxpayers who did not migrate averaged $78,959. Most of the high-income migrants fled to Florida, with Florida taking the number one spot overall and Texas placing second among all new residencies.
Despite this mass migration of relatively high earners, California Illinois and New York have all experienced bigger per capita personal income gains than the rest of the nation as a whole since the beginning of 2010. Some experts think this could have been the cause of governmental failures, the change in housing costs and job opportunities.
These numbers may yet be explained as fallout from the 2017 tax bill. Those with adjusted gross incomes of $200,000 or more leaving for other states actually fell in the high-tax states of California, Connecticut, Illinois, New Jersey, and New York from 2017 to 2018, the year the cap went into effect. Many who ended up with higher tax bills due to the change likely didn’t find out exactly how much higher until this past year, so there may be even more leaving these states in the future.
All being told, these facts present a situation where many affluent taxpayers are unhappy with their current situation for a variety of reasons, and attractive areas with an equally attractive tax policy could continue to see high growth from out of state migrants coming into town.
Ferrari
For the second year in a row, Ferrari, the iconic Italian luxury sports car manufacturer, has retained its top position as the world’s strongest brand. With a Brand Strength Index (BSI) score of 94.1 out of 100 (according to Brand Finance), Ferrari is the strongest of only 12 brands in the Brand Finance Global 500 2020 ranking to have been awarded the coveted AAA+ rating.
Ferrari has risen to such a high rating thanks, in part, to its brand value improving 9% to $9.1 billion in 2019. With five new models coming to their luxury line, including the SF90 Stradale and Ferrari Roma aimed at new market segments, Ferrari has established a manufacturing agreement with the Giorgio Armani Group to help push collections into a more premium space as well. For years, Ferrari has utilised merchandise to support brand awareness and diversify revenue streams and are now taking steps to preserve the exclusivity of the brand.
This is a fantastic lesson in brand segmentation and “knowing your audience.” As one of the top brands in the world for any product, Ferrari has achieved high visibility and recognizability combined with a high price point and a luxurious sensibility proves that sometimes in branding, less is more. Focusing on high importance value propositions and relentless consistency, it is no wonder that many consumers who might never own a Ferrari car, want a bag or watch emblazoned with their logo. Any company in any market, both large and small, can learn from Ferrari and as other brands increase their strength, the quality of our products can only increase and make the world better as a whole.
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