The Market Was Quiet & Prices Were Calm (September 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 by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive a summary of these newsletters by email, just sign up! Here’s the September Roundup:

Howdy Redfinnians!

Here’s our September round-up of real estate news…New data showed prices from last July increased .6% but that’s probably the year’s last increase; August sales volume recovered 7.6% from the mid-summer debacle but was still way, way low. Interest rates dropped again, to 4.37%, and could drop even further.

Because there are so few transactions, the numbers don’t mean much. Today’s market is like a sloop in fluky winds, where any puff of breeze swings boom and crew from one side to the other without really moving the boat. Foreclosure clouds are gathering again on the horizon, but we think we’ll avoid a second storm. The real estate market will likely swing with the tides of the larger economy.

Meanwhile, Redfin’s marketshare is spiking and our business is set to double again this year; we’re planning to launch several new markets as well as a few nifty website features later this month. Read on for details about the market, beginning with this morning’s numbers on July home prices…

Prices Settling, Likely Down

Case-Shiller data for July show that home prices increased nationwide by more than half a percent. Since each month’s index value is actually the result of a three-month moving average, the modest appreciation is probably the result of the federal tax credit that expired on June 30. Year-over-year growth was strongest in California, but these are the markets now losing steam, with low month-over-month appreciation:

Statistical Area
MoM Change YoY Change Date of Max Change from Max Prices Last at This
Level in…
Consec. Mos.
of Increase
Phoenix -0.6% 3.4% Jun-06 -51.5% Jul-01 0
LA 0.3% 7.5% Sep-06 -35.7% Dec-03 4
San Diego 0.7% 9.3% Nov-05 -34.1% May-03 15
Bay Area 0.5% 11.2% May-06 -34.4% Mar-03 5
DC 1.1% 6.5% May-06 -25.1% May-04 4
Atlanta .2% -.2% July-07 -19.5% Jun-01 4
Chicago 1.0% 1.7% Sep-06 -25.2% Nov-02 4
Boston .6% 2.8% Sep-05 -12.9% Jan-04 4
New York 1.3% .6% Jun-06 -19.0% Jun-04 3
Portland -0.3% -1.2% Jul-07 -20.5% May-05 0
Seattle 0.1% -1.6% Jul-07 -23.5% Apr-05 5
20 City Index 0.6% 3.2% Jul-06 -27.9% Oct-03 4

Once the index no longer includes June prices, we expect to see prices decline, but only modestly. Prices have been stable the past two years because the threat of foreclosure has receded, and sellers no longer feel compelled to accept losses:

The Standoff: Sales Volume Very Low

The resulting stand-off between buyers and sellers has been easy on prices but hard on sales volume. Excluding new construction, sales increased 7.6% in August, but this was mostly because July sales had been so dreadful; year over year, sales volume declined 19%. According to Redfin’s own data, the only areas in the West where demand has remained strong through September are in Southern California.

New home sales, which are generally considered a better forward-looking indicator because the numbers are based on freshly signed contracts rather than closed deals, were flat nationwide in August, but increased 16.7% in the Northeast and 54.3% in the West. We think sales gains for existing homes won’t be as strong, since builders at the end of summer tend to discount more aggressively than other types of sellers.

Who Will Move First?

What will happen to prices next? Demand seems likely to remain low because of a stagnant economy but that can change quickly if consumers become more confident: we see an enormous number of buyers touring houses right now, but with no urgency to buy whatsoever. When interest rates rise, prices drop or inventory disappears, buyers may start rising to the bait, particularly since several normally bearish economists have argued in favor of buying a home during the downturn.

Meanwhile, inventory is nearly as low as demand: all month, we’ve seen sellers who can afford to wait pulling their listings ‘til spring. That inventory will need to be bought up at some point. Would-be sellers waiting in the wings will buffer any increase in demand before prices actually increase.

A Second Wave of Foreclosures

The wild card is foreclosures. We have never seen big price drops caused by any other factor. Since late last year, Redfin has been predicting that foreclosures would moderate in early summer 2010, allowing prices to stabilize. This is exactly what has happened. But it happened mostly because banks have gotten slower to foreclose, not because consumers could pay their mortgages.

A second wave of foreclosures may be coming next year. The first wave of foreclosures hit people who could never afford their mortgage and suddenly found themselves unable to flip the house or borrow more money. But when teaser rates on loans from 2006 and 2007 expire in 2011 and 2012, another wave of foreclosures could hit a new group of people: folks who can afford the teaser rate but not the new rate.

If employment recovers by then, or if sellers can accumulate enough equity in the loan’s first five years that they can re-finance, this won’t be a problem. We think banks will be able and willing to increase loan modifications to avert a disaster, but others disagree, and we thought you should know.

Interest Rates Keep Falling

Meanwhile, interest rates keep falling, and there’s no sign they’ll stop. Last week rates dropped to 4.37%, and the Federal Reserve has signaled it is willing to lower rates more on deflation fears:

What does all this mean? Well, the future is anybody’s guess. Every market is different, and every neighborhood is different. But our guess is that the national market isn’t going anywhere any time soon. It’s a moderate position so most folks are bound to disagree one way or another. We’re eager to read what you’re seeing in your market. Thanks as always for your support.

Best, Glenn

Glenn Kelman | Redfin
Twitter | Blog

(In the original version of the table, data for Chicago and Boston had somehow been swapped in a transcription error; thanks to Rich Lytle for correcting us. We apologize for the error.)


  • Demichae

    I think you'll be seeing more foreclosures, which will further depress the market. The WSJ had an article on September 16, 2010 that noted “In recent weeks, Fannie Mae has warned that it could get tougher on lenders that are taking too long to reclaim homes once they have determined that the home is vacant or once they have exhausted foreclosure alternatives, such as modifications. Mortgage servicers, which collect fees from Fannie, could face fines if the process is unreasonably prolonged.” I live near Sacramento and know of several people that have not paid their mortgage in TWO YEARS, yet still live in the house rent free. The banks have held these properties off the market for a long, long time, waiting for the market to recover. It hasn't. Now they are under the gun to dump them. If you are thinking of buying a house right now, don't.

    • GlennKelman

      Love the combo of personal anecdote and WSJ info. Great post Demichae.

    • Rconn2

      I disagree with the general statement don't buy right now. For example the DC area market is strong and active, in popular neighborhoods there are multiple offers on a property and I hardly ever see a foreclosure. housing markets are local and specific. Again you are wrong to say someone shouldn't buy it depends what city and zip code you are in some are actually in pretty good shape

  • Joe Blocks

    So why'd you need Stanford grads to run a real estate website?

    • GlennKelman

      It's trickier than you might think. So we had to bring in some Berkeley guys to help…

      • MsSonatina

        And that's when your market share went through the roof. Just had to get the right (Cal) guys on board. ;)

  • Cuterasheen

    Thanks Demichae. Valuable information.

  • Ewshoe

    Actually an Economist out of Cornell, predicted the short supply for Rental Housing in the Metro DC area, will cause housing shortages. These housing shortages of rental will drive home sales stating mid-October.

  • Will

    Here's what I'm noticing in my little pocket in the east bay: Whereas in the past few years price was paramount, now a very good price is not enough to assure a successful sale. The homes that are moving are also in very good, condition, usually nicely staged. A few years ago, buying a home was perceived as a good investment (rational). Now, that's largely out the window, so the home also has to have an emotional pull – by looking great and being in a desirable area.

  • Elseward

    What is the general feeling for Orange County, specifically San Clemente / Dana Point?

  • The Stork

    San Clemente/Dana Point have a lot of inventory… Asking price means almost nothing. The strongest buy is going to have a view, walk to town, limited or no street noise, and maximum privacy. A guest house for additional income would make a deal sweeter too… Think big. Look for these features because they will be VERY important when the market bounces back (2015?). Lots of people are sitting on their wallets…

  • Shoreview MN Homes for Sale

    I'm Glenn brought to our attention that we have to be careful when interpretting the recent real estate sales stats. Without enough volume to report on, the variation in the data can be so large that it may suggest a strong movement one way or the other…when in fact, the movement is not meaningful. Great post!

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