• Zillow expects existing home sales to be flat in August, holding at 5.59 million units (SAAR) after an unexpectedly strong July.
• For new home sales, Zillow expects a small 0.7 percent dip to 504,000 units (SAAR) from 507,000 units in August.
• Existing home prices should hold steady in August, a continuation of the trend seen in recent months.

After a sizzling July, when both existing and new home sales beat expectations (actually, in the case of existing home sales, crushed them), we expect home sales to mellow in August. Our forecast for August predicts existing home sales to be flat, at 5.59 million units at a seasonally adjusted annual rate (SAAR), and for new home sales to fall a slight 0.7 percent drop 504,000 units (SAAR).

The forecasts call for the median price of existing homes sold to increase 0.6 percent to $220,000 and the median price of new homes sold to increase 1.6 percent to $293,000.

Background

In some respects, the current market for existing homes resembles the market from spring 2007, on the eve of the financial crisis: Sales volumes and prices are almost identical (figure 1). However, market momentum is moving in the opposite direction from eight years ago. In 2007, prices were holding constant as sales volumes steadily declined; today, prices are holding steady while sales volumes steadily increase.

Perhaps more importantly, there are almost 6 million more households in the United States today than in spring 2007. Almost all household formation over the past decade has been among renter households; most of these renter households still aspire to homeownership. This pool of shadow demand will continue to drive home sales and prices, even if in fits and starts.

The market for new homes, by contrast, is rather different than in 2007 (figure1). Despite a recent (modest) uptick, new home sales remain depressed around late 1990 levels, despite a net increase of almost 23 million households. And the median sales price of new homes is 2.4 times what is was in 1990, while consumer prices (excluding shelter) are 1.7 times higher than in late 1990.

Existing Home Sales Outlook

For the past three months, existing home sales have beat expectations – sometimes dramatically. However, in both May and June, these surprises on the upside were eventually moderated by downward revisions. And although forecasts have accurately predicted the trend toward slowing sales growth, they have tended to overestimate the extent of the slowdown.

Part of this is likely due to interest rates which have remained surprisingly low despite the looming approach of short-term interest rate hikes by the Federal Reserve. Our August existing home sales forecasts suggests that home sales growth will continue to slow and sales will be essentially flat in August at 5.59 million units (SAAR). But, of course, flat at a level much higher than would have been predicted three months ago.

New Home Sales Outlook

New home sales increased by almost one-third during the second half of 2014 – rising from 403,000 units (SAAR) last July to 545,000 units (SAAR) in February 2015. Since then, however, they have been essentially flat, rising one month then falling the next. In four out of five months since February, an increase one month has been followed by a decrease the next month and vice versa. Overall, new home sales volumes have struggled to break out (again) in 2015.

However, there has been one critical difference from the recent past: Prices have not shot upward. IOur forecast predicts new home sales in August will be about 11 percent above their year-earlier level, but the median sales price will be essentially unchanged – a sharp contrast from the previous two years, when new home sales were flat but the median sales price marched steadily upward.

Long-term Forecasts

Our longer-term home sales forecasts, for August 2015 through January 2015, suggest existing home sales should continue increasing through October (table 1). New home sales, by contrast, are expected to increase in August and September, before retreating later this year.

Compared to last month, we revised our forecast for September existing home sales downward from 5.73 million units to 5.35 million units, but revised our forecast for September new home sales upward from 484,000 units to 514,000 units (SAAR).