September Home Sales Forecast: Rising New Home Sales Insufficient to Offset Declining Existing Home Inventory

By Aaron Terrazas on 19 Oct 2016

• Zillow expects existing home sales to rise 0.45 percent in September from August, to 5.35 million units at a seasonally adjusted annual rate (SAAR). Despite the small month-over-month increase, growth at that level would put existing home sales 1.6 percent below their September 2015 level.
• New home sales are expected to fall 2.6 percent from August to 593,000 units (SAAR), but would still be up 29.7 percent from September 2015.

Contracting for-sale inventory continues to weigh on the housing market, pushing up home value appreciation and weighing on home sales. Since January 2015, existing home sales have grown year-over-year in every month save one. But that growth is flagging as the number of homes actually for sale stays low.

In September, we expect existing home sales data (to be released by the National Association of Realtors on Thursday, Oct. 20) to rise just 0.45 percent from August to 5.35 million units at a seasonally adjusted annual rate (figure 1). But despite the small month-over-month increase, existing home sales are expected to fall to 1.6 percent below their September 2015 level.

But even as limited inventory of existing homes has been an anchor on the market, new construction has provided a modest boost. New home sales have shot up recently, after remaining stubbornly low for much of the housing recovery. But with housing starts falling, our forecast points to a 2.6 percent decline in new home sales in September from August, to 593,000 units (SAAR) (figure 2). This decline would still leave new home sales up 29.7 percent from September 2015, but below the relatively strong numbers recorded this summer. The Census Bureau will report new home sales numbers next week.

Still, the increase in new home sales has been insufficient to offset the decline in the number of existing homes on the market. Over the past year, the number of existing homes on the market has declined by 213,000 units (SAAR), while the number of new home sales has increased by about 130,000 units (SAAR). In addition, the number of unsold new homes on the market has increased by about 19,000 units (SAAR). This suggests that the surge in new construction has only met about two-thirds of the existing home inventory lost over the past year.

Of course, this assumes demand has held constant over the past year. More likely, demand has increased due to rising incomes and rents, exacerbating the shortage of homes on the market.