Oct. Existing Home Sales Expected to Fall 0.5 Percent
We expect existing home sales to fall to about 5.14 million units (SAAR) in October, down 0.5 percent from September.
- Under some reasonable scenarios, the decline could be much larger.
- Slightly stronger income growth and a small tailwind from lower interest rates were insufficient to overcome the headwinds from higher prices and vacancies.
Zillow expects Thursday’s existing home sales data from the National Association of Realtors (NAR) to show a decline of about 0.5 percent to a seasonally adjusted annual rate (SAAR) of 5.14 million units in October, down from a 5.17 million-unit pace in September.
Background
Existing home sales were up 2.4 percent month-over-month in September, a slightly stronger pace than most analysts had expected and the largest number of sales in a year. Sales had been slowly but steadily increasing since late 2010, before dropping sharply last summer. They recovered somewhat in spring and summer 2014, regaining about two-thirds of the decline recorded between July 2013 and March 2014, before falling unexpectedly in August.
Forecast
Our existing home sales forecast uses two models, a structural model and a historical model. Both models point toward lower home sales in October, although the structural model suggests a larger decline.
Slightly stronger income growth and a small tailwind from lower mortgage interest rates are unlikely to be sufficient enough to overcome headwinds from higher home prices and homeowner vacancies. Although the growth in prices has slowed in recent months, it remains well above its historical pace.
But under some reasonable scenarios, the decline could be substantially larger. For instance, if the homeowner vacancy rate continues to climb at a pace consistent with recent months, existing home sales could fall to 4.82 million units (SAAR), down 6.8 percent from September. Similarly, if the homeownership rate continues its recent decline, existing home sales could fall even more dramatically—to 4.74 million units (SAAR), an 8.3 percent drop from September.
More details about the assumptions underlying this month’s forecast can be found here.
