Every month, Redfin publishes a newsletter synthesizing the past month’s data on real estate prices, and now we’re also posting the information to our blog so folks can comment in a public forum rather than only writing me back (though I don’t mind the email either). We link to all the data so you can see it for yourself, and include some of our own data, and try to explain how it all makes sense — or why it doesn’t.
The bottom-line for April was that prices kept falling nationwide, but we started seeing major increases in demand, with lots of actual bidding wars at the low end. We don’t think there will be a big, sustained nationwide bounce in prices just because foreclosure notices are way up too.
Special thanks to Val McNulty, a Chicago-area real estate professional for already reminding me that we should be clear that Case-Shiller data – – Case-Shiller is the most authoritative home-price index –don’t describe what is happening in different neighborhoods right now, only what is happening across a metropolitan statistical area, which usually includes the far-flung areas that are really drowning in foreclosures.
Prices Down 19% Year Over Year
So with Val’s caveat fresh in our minds, let’s take a look at the Case-Shiller data that came out last Tuesday. The data show that February prices declined sharply in the Bay Area and Chicagoland area, less so in other markets. This data does not mean that every neighborhood is declining, and it doesn’t provide any insight into whether prices generally have risen or fallen in more recent months — March, April or now May — but it is still the most reliable view of what has happened across very large markets, from one year to the next:
|Metro Area||Peak||Change from Peak||Equiv. Month||YoY Change||MoM Change|
|San Diego Area||Nov-05||-41%||Jul-02||-23%||-0.9%|
The table shows the month when each market peaked, the size of the drop from the market’s peak, the month in the past when prices were last at this level, the drop since February 2008, and the drop since January 2009.
An economist quoted in the Wall Street Journal estimates we’re two-thirds of the way through the real estate decline. The markets that will recover the slowest, in our opinion, will be Nevada, Phoenix and Florida, where nearly the whole economy was based on real estate.
Entry-Level Homes Bid Up
By contrast, the Federal Housing Finance Agency (FHFA) reported that home prices increased in January and February, by about 1% each month. Why are Case-Shiller numbers down when FHFA numbers are up? Well the FHFA data is limited to homes purchased with conforming loans, which tend to be entry-level homes. So as housing has become more affordable for first-time home-buyers, we’re seeing entry-level homes getting bid up, even while more expensive homes languish.
Multiple Offers Becoming More Common
We’ve noticed in all markets that, especially at the low-end, our buyers are competing against multiple offers on many listings. For example, of the 239 offers we worked on in Seattle over the past two months, the percentage in which we were competing against other buyers was 14% in March, and 21% in April. For homes under $400,000, 27% of the offers faced competition from another buyer. In the Bay Area, Los Angeles, Boston and Baltimore this trend is even more pronounced, particularly on bank-owned listings, which are usually under-priced.
Sales Shoot Up 47% in California
We’ve seen sales volume really pick up. Every agent we know says she’s really busy and so are we. DataQuick reports that the number of California homes sold in March 2009 was 47% higher than in March 2008; 57% of the sales were on foreclosure properties. The typical mortgage payment for these home-buyers declined from $1,712 a year ago to $958.
Here Come (A Lot) More Foreclosures
If demand is up, why won’t prices go up? Well, there’re a lot of foreclosures coming onto the market. A foreclosure moratorium from last November to this March let some of the foreclosure inventory get mopped up. But already from January – March this year lenders began licking their chops, issuing foreclosures notices to home-owners in record numbers, with California notices increasing by 19% compared to the three months prior.
According to data released by RealtyTrac last Wednesday, the highest rate of homes receiving a foreclosure filing in the first quarter of 2009 were all in California, Florida, Arizona and Nevada. Nationally, .63% home-owners got a foreclosure notice last quarter, but in LA that percentage was at 1.35% and in San Diego it was 1.58%. In the Central Valley and Inland Empire, the numbers were mortifying — between 2% and 4%.
And in our opinion, foreclosures will get worse, not better, because the riskiest loan programs really proliferated in 2006; many of these loans re-set rates after three years so there is plenty of bad news ahead, notwithstanding the government’s effort to home-owners relief. Also of note, the percentage of foreclosures occurring in coastal markets increased, suggesting the price drops are coming to major cities. Foreclosure starts based on jumbo loans to prime borrowers just increased 221%.
Interest Rates Still Very Low: Nationwide Average of 5.23%
Interest rates remain low, with the average rate on a 30-year fixed-rate loan — our lenders report that almost no one is shopping for any other loan — coming in at 5.23% as of last Thursday; if you have decent credit you can still borrow money below 5%. Rates haven’t moved much lately; they can’t really go much lower and the government is trying to prevent them from going higher.
Many buyers who can’t get these loans from banks are using FHA-backed loans, but we’ve lately noticed in the Bay Area and Los Angeles that sellers are avoiding deals based on FHA loans, because they don’t want to jump through extra hoops to close the deal.
OK! That’s what we’re seeing. If you want to see other data rolled into this report, or if you have thoughts on where the market is headed, be sure to let us know in the comments below…