• We expect new home sales to fall as much as 2.5 percent, to about 455,000 units (SAAR) in October from 467,000 in September.
• Strong new home sales in October, slightly stronger income growth and momentum from lower interest rates likely balanced headwinds from higher vacancies and rising prices.

Zillow expects Wednesday’s October new home sales data released by the U.S. Census Bureau to show a modest decline of between 0.4 percent and 2.5 percent, to between 455,000 and 465,000 units at a seasonally adjusted annual rate (SAAR).

Background

New home sales essentially remained flat month-over-month in September, after a surprisingly strong 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) moved 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 suggest lower home sales in October, although the historical model suggests a larger decline. Strong existing home sales, slightly stronger income growth and momentum from lower interest rates should roughly balance headwinds in the form of higher vacancies and rising prices.

Our historical model suggests home sales will decrease to between 455,000 and 465,000 units (SAAR), a decrease of between 0.4 percent and 2.5 percent from September. If the homeowner vacancy rate continues to climb at its recent pace, new home sales would fall to 461,000 units (SAAR), down 1.3 percent from September.

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