January 2010 Newsletter: Strap In! We're Headed for a Wild Ride

We kicked off 2010 by sending our monthly newsletter to 153,547 Redfinnians, an increase of 7% from last month. If you’d like to receive it via email, just sign up.

Howdy Redfinnians!

Here’s the latest romp through all the major data on home prices released in the past month, starting with the November 2009 Case-Shiller numbers just out this morning. What the numbers suggest to us is that home prices will stay in the doldrums for a little while, except in the dangerously volatile California markets. Take a look at the data and decide for yourself…

Case-Shiller Data Show Strong California Growth, Weakness Elsewhere

The Case-Shiller report was mixed, with weakness in the Northeast and Midwest, but strong growth in California, especially the San Francisco Bay Area. Overall, the 20-city composite index showed a November 2009 gain of 0.2% over October. As always, we present the seasonally adjusted numbers, which even out summer-time price increases as well as winter-time declines:

MoM Change YoY Change Date of Max Change from Max Prices Last at This
Level in…
Consec. Mos.
of Increase
LA Area 1.0% -3.5% Apr-06 -38.5% Oct-03 6
San Diego Area 1.0% 0.4% Mar-06 -38.2% Dec-02 6
Bay Area 1.5% 1.0% Feb-06 -37.7% May-02 7
DC Area -0.2% -0.6% Mar-06 -29.3% Apr-04 0
Atlanta Area 0.2% -6.2% Apr-07 -19.6% May-01 1
Chicago Area -0.8% -8.5% Feb-07 -24.3% Jan-03 0
Boston Area 0.4% -0.7% Nov-05 -15.2% Jul-03 1
New York Area -0.9% -7.1% May-06 -20.3% May-04 0
Seattle Area 0.3% -10.6% May-07 -22.3% Apr-05 2
20 City 0.2% -5.3% May-06 -29.5% Sep-03 6

Other price indexes presented conflicting data. Drawing on data from conforming loans, the federal government today reported a larger price gain, of 0.7% in November. Meanwhile First American CoreLogic, a firm that analyzes escrow records, claimed that November prices declined 0.2%. The market seems like a sailboat in fluky, light winds, yawning from one direction to the other. Below is a graph of the Case-Shiller data over the past five years:

2010_1_CaseSchiller

Are We Headed for Another Big Dip?

Good question! An economist at the Center for Policy and Economic Research just argued that homes are still priced 10 – 20% higher than mid-1990 levels, and that demand will only slacken as retiring baby boomers downsize. We don’t disagree with that analysis, but it’s hard to square with Redfin’s immediate experience. After two months of declining traffic at year-end, Redfin.com traffic began taking big jumps in January, and we also saw a huge, unexpected spike in home-tour activity. Of the offers we presented to sellers in December, 56% were competitive; in Southern California this number was 73%, with competition most fierce for homes below $500,000.

Sales Activity Fluctuating, Buyers are Jittery

All that can change fast. In general, the markets have been jittery, especially since the big dip in home sales reported yesterday. As we predicted in our last newsletter, the number of existing homes that sold in December fell 17%, a widely expected drop due to fatigue from the expiration of the original tax credit deadline. In California, December home sales increased by the same amount that sales decreased nationwide, 17% — which just goes to show that California is in a different market than the rest of the U.S.

Foreclosures Spike Up Again

Regardless of what happens to demand, supply will likely soon increase. According to the National Association of Homebuilders, new housing starts are expected to surge 38% over last year. And foreclosure activity increased 14% in December after government intervention had led to three straight months of declining foreclosures. Both new constructions and bank re-possessions will put more properties on the market, limiting price increases.

Macroeconomic Drivers Mixed

With the market in this much flux, the main drivers for sustained growth will be improvements in employment and consumer confidence, and easy credit. After unemployment eased in November, it increased again in 43 states last December. Just to confuse matters, a few days later consumer confidence improved for the third straight month. So the larger economy is also up and down.

Rates Drop, But Likely Headed Up Again

Credit has eased, surprising most analysts. The average rate on a 30-year, fixed-rate mortgage dropped to 5.15% last week, the third straight week of declines after rates began climbing last month. Most experts think rates will rise or remain unchanged, but nobody thinks rates will fall.

2010_1_Bankrategraph

That’s the major news in real estate; if you have local questions, just write back and we’ll do our best to hook you up with an answer. Hopefully you’re having a good new year.

Best, Glenn

Discussion

  • http://blog.redfin.com/blog/author/glenn%20kelman Glenn Kelman

    Hi Jakob, we’re working on preparing proprietary metrics rather than just rounding up data from other sources.

    Business is good. We ended the year with nearly 100% revenue growth over the previous year, and we were profitable for the entire second half of the year.

    December was exceptionally strong, notwithstanding seasonal declines, and January was strong at least through the first two weeks. Last week was light, but that may have been because all of our agents were in Seattle for our annual meeting.

  • http://blog.redfin.com/blog/author/glenn%20kelman Glenn Kelman

    Trabucodom, we’ve always used seasonal data, so I hesitate to abandon that now simply because people will claim that we are departing when it is convenient for us to do so, but your point is well taken. FYI, Case-Shiller economists handle the seasonal correction, not us.

  • http://www.myphoenixmls.com Bob Stahl

    Fortunately, the Fed has its finger on the pulse of the housing market — they’re not going to raise interest rates until we’re in the clear. And just like in the fall, buyers will scramble in the coming months to take advantage of the two homebuyers’ tax credits.

    Hey, I’m just a “glass half full” kind of a guy.

  • http://www.johnmarion.com John Marion

    Great report with relevant information. The rental market is strong where I am, that’s for sure. Looked at two fore closers today. Last week I saw a house that was listed wrong. Seems like the banks don’t know what they really own. It will take a while for all this to clear up.

  • http://manhattanbeachmls.com Jay

    Interesting data, things still appear to be volatile, hope it levels out soon.

  • http://galtlinedesign.com Custom IDX Guru

    Yeah I would like to see Business Trends in this report

  • http://ranchophotos.com Jakob

    How about sharing some data from Redfin? How’s business? We get all this general real estate data from countless other blogs…

  • Trabucodom

    Seems a little flawed to be using seasonally corrected data since the algorithms are unreliable. It is akin to using an algorithm to correct for the government homebuyers credit. It might make sense to do but it is too unreliable and results in faulty data and faulty conclusions. In the past when there were no large market anomalies then seasonal corrected data might make sense. It simply does not work in unusual markets like we have been experiencing. Other then that, thanks for a great blog! Great website.