• Zillow expects existing home sales to increase slightly in September to 5.32 million units (SAAR) after a disappointing August.
• For new home sales, Zillow expects a 4.6 percent dip to 527,000 units (SAAR) from 552,000 units in August.
• Continued low interest rates still boost sales, although with diminishing effects.

Existing and new home sales moved in opposite directions in August with existing home sales coming in well below expectations, while new home sales strongly beat expectations. We expect this pattern to continue in September, but flipped. Our forecast for existing home sales suggests a slight 0.2 percent monthly increase to 5.32 million units at a seasonally adjusted annual rate (SAAR), while our forecast for new home sales suggests a 4.6 percent drop from August to 527,000 units (SAAR).

Strong annualized gains should continue in both instances, with existing home sales up 4.3 percent over the year and new home sales up 14.8 percent over the year. We expect the median price of existing homes sold to increase 1 percent to $219,900, and the median price of new homes sold to increase 1.8 percent to $298,800.

Background

The homeownership rate, the homeowner vacancy rate and the rental vacancy rate have all been flat or declining for six consecutive quarters – the longest stretch since the data begin in 1965. The last time anything remotely similar occurred was in 1977-78, when all three metrics declined for three consecutive quarters as the Federal Reserve began to hike interest rates in an attempt to control high inflation. Current housing market conditions come against a backdrop of flat or declining interest rates and a normalizing household formation rate coming back from recession-era lows.

The financial incentives to buy have never been higher, thanks to historically low interest rates that help make buying a home incredibly affordable. At the same time, the financial penalties to renting have never been more punishing, as tight rental markets keep pushing rents upward. But the number of renter households keeps growing and very few renters are transitioning to homeownership. The normal feedback mechanisms by which markets respond to relative supply and demand have broken down for the time being.

Sooner or later, something’s gotta give.

Existing Home Sales Outlook

For the three months from May to July, existing home sales strongly beat expectations. But in August, sales of existing homes bucked the recent trend, coming in well below expectations. In September, we expect existing home sales to increase very slightly (0.2 percent) to 5.32 million units (SAAR), and for the median sales price of existing homes to increase 1 percent to $219,900 (figure 1). The annualized pace of growth of existing home sales is expected to continue slowing, coming down from a year-over-year pace of around 10 percent in July to 4 percent in September.

New Home Sales Outlook

After increasing for two consecutive months, we expect new home sales to retreat in September, falling 4.5 percent to 527,000 units (figure 2). This would still leave new home sales up 14.8 percent from a year earlier.

Long-Term Forecasts

Our longer-term home sales forecasts, for September 2015 through February 2016, suggest existing and new home sales should continue increasing through this fall before retreating somewhat during the winter months (table 1).