Keep Calm & Carry On! (August 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.  You can always see the full version of our newsletter right here on the blog, but if you’d like to receive a shorter update by email, just sign up!

Here’s your big August round-up on the real estate market! But first, a few morsels of Redfin news: we finally added school ratings and reviews throughout our website, and updated our iPhone app to find new listings as you zoom around the map.

June Prices Up, July Sales Volume Down

If you spend enough time searching Redfin you’ll notice the market is getting weak in the knees. The Case-Shiller numbers on June home prices came out this morning – prices are up 1.0% nationwide, and even more on the East Coast! — and nobody really cared.

Metropolitan
Statistical Area
MoM Change YoY Change Date of Max Change from Max Prices Last at This
Level in…
Consec. Mos.
of Increase
Phoenix 0.0% 6.0% Jun-06 -51.2% Sep-01 0
LA 0.6% 9.2% Sep-06 -35.9% Dec-03 3
San Diego 0.4% 11.2% Nov-05 -34.6% May-03 14
Bay Area 0.3% 14.3% May-06 -34.7% Sep-02 4
DC 1.7% 7.3% May-06 -26.0% May-04 3
Atlanta 1.7% 2.0% Jul-07 -19.6% May-01 3
Chicago 2.5% -0.1% Sep-06 -25.9% Oct-02 3
Boston 1.2% 3.4% Sep-05 -13.5% Oct-03 3
New York 1.3% 0.2% Jun-06 -20.0% May-04 2
Portland 0.5% 0.2% Jul-07 -20.3% Jun-05 3
Seattle 0.0% -1.8% Jul-07 -23.6% Apr-05 4
20 City Index 1.0% 4.2% Jul-06 -28.4% Oct-03 3

Case-Shiller Data for Key Markets, Non-Seasonally Adjusted

June is ancient history. The last of the sales driven by the federal tax credit closed in June. And what we already know about July is that prices were mixed, and sales volume was dreadful. Excluding new construction, the number of homes sold in July plunged 27% compared to June.

Don’t Panic!

But let’s not over-react! Sales volume will recover slightly in August. And while prices will likely decline this fall, especially in overheated areas of California and places like Seattle where prices may still have more ground to give, there aren’t enough new foreclosures in most of the U.S. to drive the kind of big drops we saw in 2008.

July foreclosure data was mixed, with early-stage delinquencies up, and actual foreclosures down: overall, July foreclosure activity increased slightly since June, but declined nearly 10% since July 2009. Banks are getting more aggressive about avoiding foreclosure, through refinancing or pre-approved short sales. The buyers who are out in the market are mostly complaining of nothing good to buy.

Forward-looking indicators are saw-toothed, not down. After a big June bounce, new-construction sales declined 12.4% in July, only half as much as they had gained. Based on signed contracts rather than closed deals, new-construction numbers are usually 60 days ahead of existing-home sales, suggesting the road ahead is bumpy. That’s not good but it isn’t a sleigh ride to Hades.

Redfin’s Business Mixed

And our business has been mixed, with new customers increasing through early August, followed by three weeks of only modest declines; normally the end of August sees big drops in early-stage demand. We saw a few Chicago customers cancel tours last week after the big sales drop hit the papers, but not elsewhere. Mostly the business has been steady. Our August revenues will be 15% higher than July’s.

Interest Rates Still Very Low

Nobody is worried about interest rates increasing significantly any time soon. Rates continued to decline on deflation fears, to a new historic low of 4.36% for a 30-year fixed-rate mortgage.

Houses will get cheaper and money will stay cheap. Cash investors will continue to snap up many of the best deals. The rest of us will buy when we need to move or maybe just because a house is really pretty.

And that’s it! Hope you have a good September, and thanks for your support. Questions or concerns, please just leave a comment below!

Best, Glenn

Discussion

  • http://Ankur Ankur – SmallCarsOnly

    Love RedFin’s market updates, its the only analysis on housing that I read. (except for the obvious RE gossip rags)

  • Shelia Phillips

    Normally how long does a short sale takes and what is the process

  • monica

    “The buyers who are out in the market are mostly complaining of nothing good to buy.”

    That is oh so true! We’ve been looking for 6 months and would really like to find a place. To the sellers, I’d like to say CLEAN YOUR HOUSE!! and make the minor repairs you think your buyer will make (because we really don’t want to make them). Otherwise, be more realistic on your price earlier in your sales cycle.

  • John Holland

    August won’t be much better than July (still no tax credit) and September will be worse (children are starting back to school and families avoid disruptive activities such as moving to a new home). Look for sales to improve beginning April 2011, unless the mortgage lending rate increases.

  • John C

    I’ve been looking to buy a second home – waterfront weekend place. And I expect prices to fall as Federal Taxes go up. The average increase (across all income brackets) is 20%, and capital gains rates are set to increase from 15% to 20% (an effective 33% increase). Add to that the fact that the State of Washington is likely to implement it’s own income tax via the initiative process. People are going to have a lot less net-income available for housing. Prices will fall, and I won’t by anything until this all shakes out.

  • john

    will the tax credit come back in the future??

    • http://blog.redfin.com GlennKelman

      Good question! I seriously doubt it though…

  • Llshames

    When will house prices stop dropping in Los Angles and San Diego?

    • Mysliwya

      I don't know about LA but IM starting to see reduced prices in SD on allot of my Fav.

  • GG

    This is really a tough time. We were in escrow on a house but it fell through because we could not sell our house. We lowered the price $40,000, and we still could not sell our place.

    We have decided to take our place off the market. It just doesn't make sense to lower the price again.

    • http://blog.redfin.com GlennKelman

      Sorry to hear it GG. If it's any consolation, we hear that story all the time… Best of luck next spring.

  • GG

    By the way, we live in the Los Angeles area.

  • Nizamraja

    I made the offer on a house, I am worried is Las Angeles Prices will go more down. Plus this site is petty Good.

    • http://blog.redfin.com GlennKelman

      We think prices will go down in Los Angeles, but not catastrophically. Of course, we could be wrong…

  • Lettema_02

    “Nobody is worried about interest rates increasing significantly any time soon.” How soon and how much might the interest rates increase? Also any feedback about prices rising or falling till November election time? I live in Camarillo and hunting for a house has been a real nightmare. Not having luck at all, and I so desperately want to buy a good house and a good deal. Thanks.

    • http://blog.redfin.com GlennKelman

      Everyone talks about interest rates being low through the end of the year at least; some folks worried about deflation think it could be much longer… deficit hawks on the other side of that argument, and it's a very, very deep argument. For more, read Paul Krugman, who writes on this topic frequently in the NYT.

  • hoss

    I am a cash investor and am planning to buy a property in the bay area and wish to rent it.
    Two questions:

    1) where is the best area to invest (with higher chance of long term appreciation, higher rent/price ratio and better chance of renting full term)

    2) what is the best price range for such an investment?

    thanks

    • http://blog.redfin.com GlennKelman

      That isn't an easy question to answer, at least in general. There are good deals and bad deals everywhere.
      But among Bay Area investors, low-end homes in the East Bay have been reputed to be the area of highest activity, at least as recently as two months ago, in part because so many competing buyers require credit and so many sellers prefer cash. That said, I have begun to wonder if the high-end is softening up, at least in outlying areas, though such investments are very risky (low property value, high construction value).

  • Ecdoesit

    For me I don't care about price drops post closing. It's all about the interest rate! I know that I'll be in that home for at least 7years. If I can get an average rate of return of 3% I'll do just fine. For example: $450K home drops another 10% year 1 by end of year 7 that value is up to $483K. Oh and I've paid my balance down to $311K. The naysayers are saying that I'm paying $2100 in PITI, but my interest & prop taxes help to drop my taxable income by $18K off of my $75K income. Making this a nice nice nice time to get something good

    • http://blog.redfin.com GlennKelman

      This is the point that Damon Darlin made in his last NYT article on interest rates:
      http://www.nytimes.com/2010/03/14/business/14every.html

      • Befmed1

        You have to keep priorities as well as assumptions in mind when trying to predict the future. If you want to be a homeowner that consideration alone should be given a lot of weight. On the other hand if you want to make an investment you should try to be conservative in your assumptions about return on investment. On the surface a 3% appreciation sounds modest. On the other hand the Case-Shiller information provided above indicates that the 20 city index had a 0% return for the past seven years. That is a far cry from the 7.46% return Ecdoesit’s model would have predicted for the time period above. Additional considerations include:

        - The cost of renting is equal to $1,600/month (after tax cost) or the net cost of owning in Ecdoesit’s model.

        - 30 year mortgage rates can be had for about 4.5% (in the Washington, DC currently), but this requires a 20% down payment, or $90,000. Based on the pay down in 7 years in Ecdoesit’s example, a down payment this size is required.

        - Had the $90,000 down payment been invested in US Treasuries for the 7 year period the income earned would have been $12,592. As a down payment nothing will be earned on this money.

        - There are closing costs in purchasing real estate. In the Washington, DC area they can run a couple of percent. For the sake of this example let's use only 1%. Modest assumption? Who knows? 1% closing costs to the buyer would be $4,500.

        - If you use Redfin to purchase the house you would get a rebate of $6,750. If you use a regular broker you would get no rebate.

        - According to Ecdoesit’s example, you would sell the house after 7 years. Presumably you would use Redfin again and the net commission you pay would be 4.5% of the sale price (6% if you use a regular broker). Again use 1% closing costs paid by the seller. Leaving a net of $425,250 if you assume the zero growth model (which Robert Shiller is predicting for the next few years). This will be a net loss of $29,250 (and more if you use a regular broker or have higher closing costs).

        - The increase in the equity position due to principal pay down would be $46,706.

        The net gain of purchasing the house is: $46,706 – $29,250 = $17,456.

        The net gain of not purchasing the house is: $12,592.

        In other words with an assumption based on the Case-Shiller information the benefit of having bought versus having rented is only $4,864. This difference could easily be wiped out if any of a myriad of expenses homeowners face occur during the 7 year period. For example replacing an HVAC system could cost $5,000-$6,000. Replacing a roof could cost $4,000 or more. Etc., etc.
        The bottom line is if you want to be homeowner, buy that dream home to enjoy. If you are buying that house as an investment, be careful what your assumptions are.

        • http://blog.redfin.com GlennKelman

          Wow Befmed1, great comment! Any interest in modifying this into a guest blog post for Redfin?

          • Befmed1

            Glenn, I can do that. I can make it generic. Anything special you would like it to include? Is there interest in expanding it to include cost considerations for investment properties (might be a topic for a separate blog post)? Etc.?

            By the way, if it is of interest I have put together a spreadsheet that calculates the full payment schedule for any amortizing mortgage, but not sure how to make it available to you. It can also re-calculate the impact to the schedule of making additional payments, i.e., to pay off the mortgage sooner.

          • http://blog.redfin.com GlennKelman

            Great. I'll send you an email in a jiffy…

  • stacy

    i liked this house not loved it, but loved the schools. It was bought but then it fell through. we bid on it, they countered and then we walked away hoping to come back in a month. They lowered the price and now it is sold. Do you think it could fall out again. Am i wishing for something unlikely?

    • http://blog.redfin.com GlennKelman

      My guess is that it's gone. A seller once bitten is twice shy, so the seller may have been unusually careful to get a binding contract from a serious buyer the second time around…

  • Busdriverbobo

    I live in Minnesota looking for a house in the area around Fort Lewis in Washington for my daughter. Every day I look forward to your Email with new and updated listings.Love the arial view in your listings,some real nice houses have some nasty industrial sites just down the road!!! THANKS FOR THE GREAT JOB YOUR DOING!!!! Looking for that special house for a super deal !!!

    • http://blog.redfin.com GlennKelman

      You're the reason we all come to work BDBB… THANK YOU!

  • gdjsky01

    As someone looking for a home in west L.A. county I can tell you most sellers IMO are still in denial. 3/4 of million for a 1600 sq/ft, 3 bed 1.75 bath, 60 year old box held together mostly by the 25 layers of paint on everything.

    BTW: I already wrote the webmaster, but the site's table below the main map will not scroll on an iPad.

    • http://blog.redfin.com GlennKelman

      Yeah, we fixed the bug today… sorry about that!