July Home Sales Forecast: Is the Party Over?

• Zillow expects existing home sales to fall 1.9 percent in July from June, to 5.46 million units at a seasonally adjusted annual rate (SAAR), ending a string of four consecutive monthly gains.
• New home sales should fall 6.65 percent to 553,000 units (SAAR) after a stronger than expected June.
• Given the recent string of home sales beating forecasts, we view risks to the upside and would not be surprised if results are slightly stronger than we expect.

Thus far, it has been a pretty sweet ‘16 for home sales. But according to our July home sales forecast, the party looks like it could be coming to an end, at least temporarily and especially for sales of existing homes that must eventually face the harsh reality of tight inventory and rising prices.

Despite tight inventory, existing home sales have been surprisingly buoyant lately, beating or meeting expectations in each of the four months from March to June. We expect that streak to end in July. If nothing else, the odds that home sales continue to rise are increasingly dim. Since the series began in February 1999, runs of five months or more of consecutive monthly gains have only occurred five times – and only one of those streaks lasted six consecutive months or more.[1]

Shifting seasonal patterns may be behind some of this apparent resiliency. By some reports, the height of the home shopping season – historically most concentrated during the summer months – shifted earlier this year as buyers sought to get ahead of the competition. But sooner or later, tight supply and rising prices should take their toll.

Our forecast for existing home sales points to a 1.9 percent decline from June to 5.46 million units at a seasonally adjusted annual rate (SAAR) (figure 1). This would place existing home sales down 0.3 percent compared to a year earlier.

New home sales have also proven surprisingly strong, beating expectations for the past eight months. Our forecast suggests that new home sales should fall 6.65 percent in July to 553,000 units (SAAR), which would be the largest month-over-month decline since last September (figure 2). That decline, however significant, would still leave new home sales up 11 percent over the year – a sign of just how strong the new home sales market has been so far in 2016.

And while our forecast points to fewer new home sales in July compared to June, given the recent record of beating expectations, we view forecasts risks to the upside and would not be surprised if new home sales come in slightly above our forecast for July.

[1] That longest exception was the eight months leading up to the expiration of first-time homebuyer tax credits in late 2009.