O'ahu's softening housing market saw its largest monthly drop in sales this year in August, while prices remained higher than a year earlier but only by a little.

The Honolulu Board of Realtors reported that the median price for previously owned single-family homes sold last month was $635,000, up 2 percent from $625,000 a year earlier but down from $660,000 in July. A record was set in May at $668,300.

The 2 percent year-over-year increase was the smallest this year compared with increases of 8 percent to 22 percent between January and July. But don't expect prices to decline. Economists forecast that prices will flatten out and not drop significantly.

"We're not really seeing a major increase or decrease in prices," said Harvey Shapiro, the board's research economist.

The monthly median price this year has bounced above and below a rough average near $640,000. Shapiro said August's slim increase over a year earlier was largely because of a huge increase in the year-ago median, which rose 39 percent to $625,000.

This year through August, the median single-family home price is up 10 percent, which is higher than expected, said Bill Chee, president of Prudential Locations. "It's holding up fairly well," he said.

Chee predicts that for the full year, the median single-family home price will be up 7 percent to 8 percent.

For condominiums, the median price in August was $305,000, up 8 percent from $282,000 a year earlier but down from a record $329,000 in July.

What fell dramatically was the number of sales, which decreased by 23 percent to 351 for single-family homes, and by 30 percent to 580 for condos.

Prior to August, the biggest sales declines were 21 percent for single-family homes in April and 27 percent for condos in July.

Mary Flood, Honolulu Board of Realtors president, said the large decline last month is understandable because August 2005 was the high point of the market cycle that started climbing in mid-1997.

"August 2005 was the best sales month last year and was also the peak sales month in this cycle," she said.

Combined with soft prices, the sharp decline in transactions last month resulted in a drop in the year-to-date total dollar volume for the first time this year.

During the first eight months of the year, total dollar volume from sales was down 2 percent, or $95 million, to $3.82 billion compared with the same period last year.

Shapiro said O'ahu's housing market is still transitioning to a balance of buyers, sellers and inventory where price pressure becomes minimal.

"We haven't yet reached this point," he said. "The housing market on O'ahu is ... still adjusting to lesser sales as demand returns to a more normal pace," he said.

Single-family homes sold last month spent a median of 49 days on the market. That was up from 43 days for July sales but down from 50 days for June sales and 52 for May sales. Condos sold last month spent a median of 42 days on the market, which was a high for the year after 39 days for June sales.

Inventory continued to grow last month, rising to 1,937 from 1,885 in July for single-family homes, and to 2,707 from 2,634 in July for condos. Though roughly double the levels of a year earlier, August inventory is well below levels during the late 1990s.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.