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:
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:
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
|# of Months
|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:
In the East & Midwest, the decline was more gradual, and, except in Washington DC, the bounce less pronounced:
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:
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.
Glenn Kelman | CEO, Redfin