Home-Buyers Getting Testy

Last Wednesday, Redfin set a record for home-tour requests. Usually, our home-tour requests peak in May, when people start looking for homes in earnest. And usually Wednesday is a slow day, at least compared to Friday. But here are the stats on home tours this year:

1st-tour requests: 1,686 projected for September vs 1,533 in August
Total tour requests: 5,286 projected for September vs 4,762 in August

Some of this is because Redfin has grown. Some of it is because the market has begun to revive, and the first-time home-buyer tax credit has gotten home-buyers rushing to beat the December 1 deadline for a closing. So we asked ourselves what’s going on?

Adam Wiener and Rob McGarty, who analyze Redfin’s real estate operations, report that offer submissions for the first half of this month are up 68% from the same time year, and that excludes all the new markets we opened. But they caution that the decline from the seasonal peak in July is not as steady as I’d assumed: offers last year spiked in the first two weeks of September, though not as much as they have this time. The spike at the beginning of the month  is probably because both buyers and sellers are back from their August vacations.

How much of the demand will disappear after the first-timer credit expires? Not quite as much as I’d thought. In the past two years, 55% of our offers have been in the first-timer price range, for homes under $500K — but that number in September has increased to only 61% of our offers. We looked at tours data to see if earlier on in the pipeline there was a preponderance of first-timers but the data was just noisy, with no real trends.

We also looked at Redfin Forums, to get a feel for whether buyers are getting frustrated by the competition, and there was certainly plenty of that: in the Bay Area, in Los Angeles,  and this gem in Washington DC.

But the most interesting commentary on the market came from Redfin’s Chris Glew, who sent me and Matt this note Thursday afternoon:

*~*~*~*~*

From: Chris Glew
Sent: Thursday, September 17, 2009 2:26 PM
To: Glenn Kelman; Matt Goyer

Glenn:

Over the last few days, I’ve been talking to our agents about what they’ve been seeing in their markets. One thing I’ve heard from most markets is that there are a lot of people looking to buy, but there’s very little good homes for sale. Buyers who’ve been looking since June or July have seen everything for sale in their target neighborhoods & price ranges. When a well-priced home in good condition comes on the market, buyers are ready to pounce and nice listings go under contract quickly:

Marshall Park told me “if it’s on the market over 30 days, it’s over priced or doesn’t show well.”

Mark Reitman is working with a buyer looking at homes on the North Shore priced ~$600K who’s been prepared to bid on three different homes but each one sold before they could submit an offer (all three went under contract in less than a week).

Jim Holt says, “It feels like summer with all the activity.” 19 of the 21 offers (90%) Jim submitted in August were on homes with multiple offers. He says almost everything is selling for more than you would expect and sellers are concerned deals won’t appraise out so they’ll often counter with no appraisal contingency. Jim is working with a buyer who’s made 4 offers in the last 4 weeks on $525K – $625K homes in Daly City & Pacifica. All four offers were rejected and the homes all sold above list. One was listed at ~$530K, received close to 20 offers and sold for ~$650K.

Adam Welling says that in Cambridge & Somerville there’s a lot of activity across the board: SFHs & condos, $300K to $700K. It’s not the tax credit, it’s that everyone is trying to buy before prices and mortgage interest rates start going up.

I hope this helps.

*~*~*~*~*

So it sounds like demand is up, but there aren’t many high-quality homes to buy, in part beccause builders haven’t added much new inventory anywhere either except a bit in Seattle and the Bay Area and in part because home-sellers still don’t want to compete with all the foreclosure inventory on the market or about to enter the market. The increase in demand notwithstanding, we aren’t worried about prices increasing — there’s enough inventory waiting in the wings that prices can’t increase too much — but we do worry about the expiration of the tax credit and — far more importantly — an increase in interest rates.

So we’re starting to believe that there really is some pent-up demand, beyond that created by the tax credit, but we’re not sure it will survive the first big jump in rates. What’s your take?

Discussion

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  • Mike

    It scares me. It’s inevitable that prices will fall further. The market is being held up by government subsidies – from the tax rebate to low interest rates, which are in part subsidized by the fed buying mortgages and flooding the market with cash.

    Eventually, the money spigot has to close. Interest rates have nowhere to go but up, the rebate has to end, and the fed has already announced that they will slow their buying of mortgages. When the subsidies end, either prices will have to fall or wages will have to rise for the market to stay where it is.

    I am not scared of being priced out. If prices rise, so will my income. The days of outrageous appreciation are over: now we are back to the boring days when prices rise and fall according to how much money we make. I want to buy a house, but I have no confidence that there will be any appreciation for quite some time. So the decision to buy is based solely my quality of life – which, frankly, is quite good right now.

  • http://blog.redfin.com/ Glenn Kelman

    Mike, I agree that prices could fall further but don’t ever like to see “inevitable” and “prices” in the same sentence. It is also possible that prices will go up, though I don’t think they will.

    What I am most confident about is not the direction of prices, but the direction of interest rates. Long-term the cost of money will increase faster than the cost of a house, simply because of monetary policy.

  • Clint

    *Rates have to rise sooner rather than later (within the next year?). When rates go up, prices go down (generally)
    *Shadow inventory still waiting to be unleashed
    *Months of inventory still on the higher side
    *FTHB credit expiring at the end of November (though it may be extend by 6 months)
    *Unemployment hasn’t peaked
    *Possible problems from Alt-A and Option Arms in 2010-2012
    *Mortgage defaults haven’t peaked

    Things don’t look good for home prices in the next 2-3 years. It seems like were in a mini bubble right now due to the tax credit’s possible expiration. There are a lot of crappy houses on the market right now since the good ones go under contract fast. Sellers were used to getting top dollar for their crappy homes.

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