Dude, Where Are The Homebuyers? (June Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published on the 11th or 12th of each month, which analyzes our own databases to identify — well ahead of anyone else — the major trends in listing inventory and prices as well as sales activity and consumer traffic.  To receive these newsletters by email, just sign up! We also post newsletters to our national and local blogs. Here is the June Roundup.

Howdy Redfinnians!

The real estate market has fallen asleep in a lawn chair, and we’re here to tell you all about it! Below is our monthly roundup of everything that moved in the market…

April’s real estate newspaper showed up on our doorstep this morning in the form of the Case-Shiller data on U.S. home prices — it takes the economists that long to sort out the data. As we predicted, April home prices increased from March almost across the board, with the lone exception being New York. The biggest increases were in San Francisco, Washington DC, Portland and Atlanta.

Metro Area MoM Change YoY Change Date of Max Change from Max Prices Last at This
Level in…
Consec. Mos.
of Increase
Phoenix 0.5% 5.4% Jun-06 -51.6% Jul-01 1
LA 0.7% 7.8% Sep-06 -37.3% Nov-03 1
San Diego 0.7% 11.7% Nov-05 -35.5% Apr-03 12
Bay Area 2.2% 18.0% May-06 -36.0% Jun-02 2
DC 2.4% 7.3% May-06 -28.5% Apr-04 1
Atlanta 1.8% 0.2% Jul-07 -22.6% Oct-00 1
Chicago 0.6% -1.6% Sep-06 -28.6% May-02 1
Boston 1.4% 4.9% Sep-05 -15.8% Jun-03 1
New York -0.3% -1.0% Jun-06 -21.7% Apr-04 0
Portland 1.8% -0.4% Jul-07 -21.6% May-05 1
Seattle 1.0% -2.8% Jul-07 -24.5% Mar-05 2
20 City 0.8% 3.8% Jul-06 -30.0% Aug-03 1

Why are we not surprised? Well, the federal first-time home-buyer’s tax credit required home buyers to be under contract in April, and to close by June. We expect sales volume and home prices to increase through June, and probably longer in California where there is also a state tax credit likely to last through July.

But after that, we’re almost certain the market’s going down. Outside of California, the number of people visiting our website is still high, but as we immediately noticed in May, they’re visiting less frequently. Fewer customers are touring properties, and fewer are making offers. The only increase in activity outside of California has been an uptick in customers listing homes; this has been a good development, as old inventory has been piling up that nobody wants to buy.

Case-Shiller Home-Price Index, Last Five Years

Now, the Problem is Weak Demand

The first confirmation that demand was off came last Tuesday, when the U.S. Department of Commerce reported that contracts being signed on new construction dropped 33%, worse than even the glummest economists expected. What this means is that we’ve stopped worrying about supply and started worrying about demand: last year, we saw plenty of buyers chasing a seemingly bottomless pit of foreclosures being sold at fire-sale prices. At the time, we said foreclosures wouldn’t peak until summer 2010.

Now, we see demand weakening even as foreclosures are being mopped up: the percentage of May home sales that were distressed was 31%, compared to 33% the previous month, and May loan-default notices declined 22% from the previous year. Anecdotally, it seems like the sellers stuck on the market for the past six months aren’t dropping their prices because they need every penny from the sale to pay off the bank. But sellers just coming onto the market are being more realistic in their pricing.

A Significant Price Recovery is 9+ Months Out

That doesn’t mean prices in most markets are going to fall off another cliff, even if demand is weak. The Phoenix market has already lost 52% of its value and homes are now selling below construction cost, so desert homes probably won’t drop another 25%. But it does mean that a significant price recovery is more than nine months out. The summer-less real estate cycle that we have been predicting month after month has arrived: usually sales peak in July, but not this year.

We Were Wrong About Interest Rates

We haven’t been right about everything. Take interest rates for example. Last month, we reported that “we can’t help but believe that rates this low will give summer home-buyers a real jolt.” Well, the truth is that nobody will feel a jolt until the low rates show signs of moving up – rates last week for 30-year fixed-rate mortgage were at a mind-bogglingly low 4.69%. But central banks around the world have made it clear that, despite recent skepticism, they’ll keep rates low for as long as they can, maybe until the end of the year.

30 Year Fixed

We once believed that rates would have to increase by the fourth quarter, and now we’re not sure when that will happen. If rates go up a bit, it would probably just get the market moving. If rates go up a lot while unemployment is still high, we could be in for a long period of very low sales volume, and low prices.

That’s the news! Life at Redfin is good. Our customers are still insanely happy, and we’re grabbing market-share fast enough that we should be ok even if tough times are ahead. If you have any questions or quibbles, just drop me a line. I get every reply to this newsletter, and try to answer every question.

Happy Fourth of July!

Best, Glenn

Glenn Kelman | CEO, Redfin

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