Buyers and Sellers: Not Mating in the Wild (March 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 these newsletters by email, just sign up! Here’s the March Roundup:

Howdy Redfinnians!

Welcome to our big March synthesis of all the national real estate trends! The news is bad for home-owners, good for buyers: prices are down, sales are down further. The smart money is moving in, as a whopping third of all home-buyers are investors, but the typical consumer is still a bit scared.

Foreclosures are at a 36-month low, which will limit price drops for now, but other would-be home-sellers aren’t picking up the slack: in many core markets there are plenty of year-old listings, but nothing much shiny and new. Rates dropped again.

In our own business, we launched Agent Insights, where our own agents take notes on listings as we guide buyers through them, sharing these notes with our other customers on our website. To see what we think of a home before driving out to it yourself, just click on any starred listings:

Real Estate Agent Comments

In some areas, we see as many as one third of all homes in person…Now let’s dive into the numbers!

Prices Drop 1% in January

The Case-Shiller analysis of January home prices came out Tuesday, showing a 1% decline since December. Every market fell except Washington DC; the steepest monthly drop was in Minneapolis, then Seattle:

Market MoM Change YoY Change Date of Max Change from Max Prices Last at This
Level in…
# of Months
of Decrease
Phoenix Real Estate -1.5% -9.1% Jun-06 -55.4% Mar-00 8
LA Real Estate -0.6% -1.8% Sep-06 -38.0% Oct-03 6
San Diego Real Estate -1.2% 0.1% Nov-05 -37.3% Feb-03 2
Bay Area Real Estate -1.9% -1.7% May-06 -38.9% Feb-01 6
Denver Real Estate -1.1% -2.3% Aug-06 -12.5% Apr-02 7
Washington DC Area Real Estate 0.1% 3.6% May-06 -26.8% May-04 0
Atlanta Real Estate -0.4% -7.0% Jul-07 -27.0% Nov-99 6
Chicago Real Estate -1.8% -7.5% Sep-06 -31.3% Jul-01 5
Boston Real Estate -0.3% -0.6% Sep-05 -16.7% Apr-03 6
Las Vegas Real Estate -0.3% -4.4% Aug-06 -57.7% Sep-99 4
New York Real Estate -0.9% -3.0% Jun-06 -22.9% Feb-04 5
Portland Real Estate -1.8% -7.8% Jul-07 -27.2% Jan-05 7
Dallas Real Estate -0.5% -2.8% Jun-07 -9.8% Jul-02 7
Seattle Real Estate -2.4% -6.7% Jul-07 -29.6% Sep-04 6
20 City Index -1.0% -3.1% Jul-06 -31.8% May-03 6

We expected a January decline, predicting last month that prices would fall to “dreadful” levels in January and February, but rise again in March and April, mostly because the stock market has been making people feel richer. Stocks have almost doubled since March 2009; housing prices in that time have increased only .6%.

The 2007 — 2008 decline was precipitous in the West, with a nice bounce in 2009 that has now disappeared:

Case Shiller Report US West

In the East & Midwest, the decline was more gradual, and, except in Washington DC, the bounce less pronounced:

Case Shiller Report US Midwest

The Market Falters, But Isn’t Plunging into the Abyss

Since we predicted that prices would stop falling in March and April, Japan and the Middle East plunged into turmoil and consumer confidence faltered–though not as much as most analysts feared. We aren’t as sure of the market anymore. Prices may fall, though we don’t see any basis for a significant drop.

Bill McBride, who called the housing bubble in 2005 on his blog Calculated Risk, is also mixed. He wrote yesterday that nationwide price indexes won’t fall more than 2% – 7% from current levels because there are so many all-cash investors, especially at the low-end. All-cash sales are at record levels, especially in the most distressed markets.

Bill also notes that rents have been increasing, so that the ratio between rents and home prices is only 15% – 20% above where it was pre-bubble. This is a key metric, since the need for shelter is mostly constant. As rents increase and prices fall, more would-be renters become buyers, and more investors buy properties for rent income.

The Stand-Off Continues: Nobody Wants to Sell at These Prices

Our own business saw a 25% increase in March closings but April seems likely to be only slightly better than March. Usually at this time of year, we expect demand to jump from month to month through June.

Part of the problem is limited inventory, as the winter stand-off between buyers and sellers continues: home-owners are unwilling to list their homes at current prices, and buyers are tired of looking at last year’s listings. One reason we’ve been seeing lower prices is just because of low-end inventory, not low demand: the only homes to buy are pretty bad.

And banks, under government pressure after the robo-signing scandal, have forced less inventory onto the market: foreclosures declined 21% from November to January, hitting a 36-month low; foreclosures may bounce some but the government is pressuring banks to let more home-owners sell their properties prior to foreclosure.

Sales Fall 9.6%, And May Get Worse

Without blue-light foreclosure specials, buyers and sellers have been reluctant to mate on their own in the wild. The really scary number is the decline in February new-home sales, which is 16.9% below January levels. For previously owned homes, February sales volume actually fell a whopping 9.6%. Sales were 2.8% lower than last year, when there was a federal tax credit goosing activity.

The year-over-year decline was a lot better than we thought it would be, actually. And the numbers are going to get better, as pending sales increased 2.1%, when economists had been expecting a 1% decline. It will take time for the market to perform on its own, without banks driving down prices and the government driving up demand, but we think this will be the first year that happens since 2007.

Interest Rates Calm Down, a Bit

One reason for a big hole in the usual spring run-up in home sales has been interest rates. Rates spiked mid-February to 5% or higher, which gave home-buyers a big scare. Since then, rates have returned to an average of 4.81% for a 30-year mortgage, in part because investors flustered by Mideast turmoil and Japan fled to mortgage-backed securities:
30-Year Fixed Home Mortgage Rate

Folks made fun of us last year when we said houses would get a bit cheaper while the money to buy a house would get much more expensive. Yet this is exactly what has happened.

And that’s our take on the U.S. housing market for March. It isn’t going to get better any time soon; prices might drop a bit more, and rates may rise. Thanks as always for your support, and please share any feedback with us in the comment section below.

Best, Glenn
Glenn Kelman | CEO, Redfin


  • Guest

    Prices should drop to below 2000 levels and the big problem is that there is a moratorium on foreclosures. If that was not in effect you would see a different outcome in the markets. IMHO, there is still funny business going on in the markets. Short sales are the “new” foreclosure as I personally know two people going through the process now. I have to concur with the assesment that sellers are holding out much the same way banks are. The quicker they allow the prices to devalue the faster the mess will be over with. Your house is not an investment to make money off of but a hedge to long term inflation and a great place to live in.

  • Romulousmike

    Truth hurts huh?
    Why delete my post and not respond?

    “But we think everything’s going to be ok, and that it will actually get better, at least for a little while, if not for a long while.” – Glenn Kelman | CEO, Redfin (FEB 24 2011)

    “It isn’t going to get better any time soon; prices might drop a bit more, and rates may rise.” – Glenn Kelman | CEO, Redfin (MARCH 30 2011)

    • GlennKelman

      I think I was clear that I made the wrong call RomulousMike; the market did not strengthen in the past 30 days more in the way that I had anticipated. When have we deleted your post?

      • Paul Cofrancesco

        Thanks for being open and honest about this. It is hard to predict these things and I'm not sure you would deserve the credit if you were right because in these times so many factors can reverse a trend – natural disasters (Japan, etc), a spate of unexpected government overthrows and so on…

  • Artur

    That's one of the best titles yet for certain segments of the real estate market.

  • bay

    Great article and one of the most unbiased assessments I've seen from anyone in the real estate profession. It's been a constant “its a great time to buy!” from everyone in the industry over the past 5 years. So having someone actually discuss reality is refreshing.

  • jon

    Great article, but do you always have to include 'as we predicted' 5 times in every article

  • Flriii

    Well the rent vs price graph shows that houses are still 20% over valued on average.

    • Paul Cofrancesco

      Thanks for pointing this out. My tired mind didn't catch it until I read your comment.

  • Tootooh

    We live in Silicon Valley Mt. View. Been looking for a house since 6 months ago when our baby was 1 month old. Got outbid 2 times. The 1st time there were 4 offers. And the 2nd time we didn't even get to see the house, only was notified it was sold to all cash buyer with 2-day-close! And other properties we thought were decent all went on pending within 1 week.

    My point is—
    I don't know what all these national news/analysis really mean to us when clearly the market we are dealing with is simply HOT. Very sad for us buyers :(

    • GlennKelman

      Tootooh, we also publish a local report that talks about bidding wars on the Peninsula:

    • Mail

      We searched for over a year putting in at least 8 offers. Many of them short sales.
      I think patience is key. We were willing to put in 50 offers if necessary and do whatever it took to find the right home at the right price. Nothing less would do. Have faith! All that practice helped us deal with the stressful emotions much better. We got used to it. Now we are very happy. The right realtor is important as well. She became our greatest asset.

  • Mwm1165

    As quiet as it is kept from most of you, the market will NOT recover to those crazy years of insane over-valued property until the CROOKS in the RE and financial industry, who created this MONSTER, accepts their demise. It is checkmate time.

    Not only are the so-called prices still to high, but the average joe cannot afford to be duped into the same crooked sales jobs again. You guys want a repeat performance of what you just wrought. I do think the Lenders have lost their appetite for greed and screwing the consumers, because to continue to do so will also affect the Lenders and the entire economic condition of our nation and the world.

    Those people lucky enough to be employed no longer earn the salaries that they once did. Employers now pay less and seeking to further cut in that direction. You see that businesses are trying to kill Unions because they plan slave wages. Employers don't even want to pay minimum wage and never did. Therefore, any buyer had better be apprehensive about trying to purchase a home at those current grand theft prices.

    It doesn't matter how long the banks and other sellers hold out, buyers now have enough sense to not be taken for YOUR ride again. You taught all of us a great lesson of 'buyer beware'. Consumers don't need you to tell them when the time is right to purchase. I think consumers have a belly full of your advice. You have beat it into our heads to not get in over our heads and seems most of us have learned a great lesson. Everything is priced OVER our heads and earning power.

    The market is now working as it should now that your slick tricks and salesmanship no longer work on unsuspecting consumers. Though Investors are your main hope at this time, they too, had better be careful lest they end up holding the bag for the banks and other Lenders.

    • Paul Cofrancesco

      Don't forget that greed drove the average Joe. Joe though he could get rich from his house and the more house he bought or fixed up with a home equity loan the bigger the return.

      In San Diego I was told many times SD is higher than the rest of the country (true but 2x or 3x or 4x? – remember the average home here is 1200 sq ft on a 4000 sq ft lot! – give or take). I was also told that the bubble prices and 10 to 20% YoY increases are just how it would be from now on! To which I replied that in 10 years the average home in SD would be over a million dollars! I was told that if Americans could not afford a home here it didn't matter because “rich foreigners were coming to SD in droves”. If I was a “rich foreigner” with a million plus to drop on a home – I'm not sure the average home in SD would be that appealing to me.

    • MarketsWork

      I don't think you can pretend that the folks defaulting on their loans were all duped and should have no culpability. Someone made a decision to buy the house – no one was forced to buy, and the numbers were all there. A lot of people have ignored the old adage “if it seems to good to be true, it probably is”.

      Additionally, the phrase “killing the unions as part of a plan to implement slave labor” may be effective at stirring up people's emotions, but it's hardly the truth. Let's try – correcting poor decisionmaking in the past that was largely setup by irresponsible pandering in the public sector and an imbalance of power in the private sector for the sake of returning to fiscal solvency and responsibility (public) and allowing our goods to be compete in foreign markets (private).

  • Renting in Mass

    I think Glenn was kidnapped by realtors last month and forced to write that oddly optimistic February post ;)

    I'm glad to see a retreat away from cheerleading and a return to presenting data.

    And kudos for the nod to Calculated Risk. That's the ultimate location for unbiased data.

    • GlennKelman

      I love Calculated Risk. And I always try to get it right, even when I'm wrong, even when I think the market is improving. Our business went crazy for a month, and it makes us go a little crazy, too.

  • En064

    Nice unbias reporting.

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  • noho1977

    Clearly written and informative, thanks for responding to all the comments as well.

  • John Evan Miller

    Very informative statistics you presented and great title lol. The results sound promising for buyers, foreclosures being at an all time 36 month low is good news!

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