• Zillow expects new home sales to fall by 1 percent month-over-month, to 453,500 units (SAAR) in November.
• Steady projected income growth and a lower 30-year fixed mortgage rate are not enough to overcome rising homeowner vacancies and falling homeownership rates.

Zillow expects Tuesday’s November new home sales data from the U.S. Census Bureau to show a decline of about 1 percent, to a seasonally adjusted annual rate (SAAR) of 453,500 thousand units, down from 458,000 units in October.

Background

We expect new home sales to fall somewhat in November, even after sales continued to increase slightly in October after two previous months of increases – including a 15 percent month-over-month increase in August. Sales had increased steadily from early 2011 through the first quarter of 2013. Since then, new home sales have fluctuated around an average of about 430,000 units (SAAR), an increase of almost 60 percent from the 270,000 units (SAAR) sold at the bottom of the market in February 2011. Despite this rebound, new homes sales volume still remains well below its pre-2002 average of 641,000 units (SAAR).

Forecast

Our new home sales forecast uses two models, a structural model and a historical model. Both models point toward lower home sales in November, although the structural model suggests a larger decline.

Steady projected income growth and further declines in the 30-year fixed mortgage interest rate appear not to be enough to overcome the tides of rising homeowner vacancies and falling homeownership rates. Rising prices could also be a roadblock to higher sales, even as the percent of loans in foreclosure continue to fall.

Under some reasonable scenarios, the decline could be larger than the 1 percent dip we expect. If the only significant change is that the homeowner vacancy rate continues its recent upward movement, new home sales could fall 1.5 percent from October, to 451,000 units (SAAR). If only the homeownership rate changes notably, and continues to decline at a pace consistent with the past year, home sales could fall to 449,400 thousand units (SAAR), a decline of 1.9 percent. If both of these changes come to pass, home sales could fall as much as 2 percent, to 449,000 units (SAAR). Given the uncertainty surrounding these scenarios, we are inclined to place greater emphasis on the results of the historical model.

More details about the model and assumptions underlying this month’s forecast can be found here.