A Wild Ride, Somewhere Near the Bottom of the Ocean (April 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 April Roundup:

Howdy Redfinians!

All the April real estate numbers are out, so it’s time for our monthly round-up of everything that moves in U.S. real estate! First, our big Redfin news is that Agent Insights is a huge hit: in markets like Seattle, San Francisco and Washington DC, Redfin real estate agents have published first-hand insights on 10 – 30% of the listings that debuted since the website feature launched, everything from “the 4th bedroom isn’t legal” to “significant water damage” to “spectacular view” to “on a bus line, but electric so very quiet.”

Very, very good stuff. Our data providers limit us to sharing data with registered users, so sign in and start searching! Hopefully, we can help you pick the homes to see before you get in your car.

Prices Down, Sales Up

Alright. Now. WHAT ABOUT REAL ESTATE PRICES? The data are mixed. February prices fell across every city in the U.S. except Detroit, almost re-visiting the pre-tax-credit April 2009 low:

Market MoM Change YoY Change Date of Max Change from Max Prices Last at This
Level in…
# of Months
of Decrease
Phoenix Real Estate -0.7% -8.4% Jun-06 -55.7% Feb-00 9
Los Angeles Real Estate -1.0% -2.1% Sep-06 -38.6% Sep-03 7
San Diego Real Estate -1.3% -1.8% Nov-05 -38.1% Dec-02 3
San Francisco Real Estate -2.6% -3.5% May-06 -40.5% Dec-00 7
Denver Real Estate -1.2% -2.6% Aug-06 -13.6% Jul-01 8
Washington DC Area Real Estate -0.1% 2.7% May-06 -27.8% Apr-04 1
Atlanta Real Estate -0.5% -5.8% Jul-07 -27.1% Nov-99 7
Chicago Real Estate -2.2% -7.6% Sep-06 -32.8% May-01 6
Boston Real Estate -1.5% -1.0% Sep-05 -17.9% Mar-03 7
Las Vegas Real Estate -1.0% -5.0% Aug-06 -58.1% Jun-99 5
New York City Real Estate -0.5% -3.1% Jun-06 -23.5% Feb-04 6
Portland Real Estate -1.6% -7.0% Jul-07 -28.3% Sep-04 8
Dallas Real Estate -0.2% -1.2% Jun-07 -10.0% May-02 8
Seattle Real Estate -1.9% -7.5% Jul-07 -30.9% Jun-04 7
20 City Index -1.1% -3.3% Jul-06 -32.6% Apr-03 7

The West has been much more volatile than most of the East:
Case Shiller Index West

I was surprised to see DC-area prices slip in February:
Case Shiller Index East

The Next Six Months Are Going to Be a Wild Ride

Prices nationally are at the level first reached in Q2 2003, wiping out almost a decade of appreciation. But the number of homes sold in March rose by 3.7%, whereas most economists expected only a 2.5% increase.

This is exactly in line with the forecast we published in the Wall Street Journal on February 10, where we wrote that “January and February numbers will be woeful. But…March will be better.”

What will happen next? After nine months of falling prices, the next six will probably be up and down. April and early May will soften again — March new-construction contracts were dreadful, and applications for home-purchase loans just ticked down — but the summer looks strong to us.

Redfin has been setting records over the past two weeks for accepted offers, with most of that business set to close in June. For the first time in a long time, you hear folks on Wall Street talk about “hefty gains for housing prices over the next 5 – 10 years.” Whether this is true or not, just hearing that kind of chatter raises one of my substantial, hairy eyebrows…

In A Falling Market, Bidding Wars

On the ground, a shortage of high-quality inventory still frustrates home-buyers. Rising rents are just starting to push first-timers back into the market, but they’re getting blown out by cash buyers, who now account for a record 35% of purchases.

Listing agents continue to under-price properties ahead of the falling market to create bidding wars: in many counties, we’re seeing a bizarre combo of month-over-month price drops and sale-to-list ratios above 100%. This tactic started with bank-owned listings, but now it’s often the way regular listings are priced too.

As we predicted over and over again, foreclosures began falling in 2010, a trend that continued in the first three months of 2011: by 15 percent from the previous three months, and by 27 percent from the same period last year. Some of this is temporary while banks sort through the robo-signing fiasco, but mostly banks have figured out that they lose less money negotiating with the owner than foreclosing on properties. Shrinking foreclosure inventory is one reason further wrenching drops seem unlikely to us.

Interest Rates at 4.8%, Affordability At 20-Year High

The x-factor is interest rates. Rates on 30-year mortgages rose to 4.9% through most of April, but fell back to 4.8% this week. Because the rest of the economy is recovering modestly while interest rates and prices have mostly stayed low, home affordability is at its highest level in 20 years or more, according to biased sources like the home-builders and the Realtors, but also according to slightly less biased sources, like Wells Fargo and Zillow too.

We know we sound like a Realtor — “record affordability!” — but baby it’s a fact. The long-term question — debated even by the great real estate economists Robert Shiller and Karl Case — is whether real estate will be like groceries, which account for a smaller and smaller percentage of our income over time, or if housing prices rise with income. If real estate is like groceries, affordability doesn’t matter much.

We won’t settle that issue here, but you can weigh in by leaving a comment below. As always thanks for your Redfin support!

Best, Glenn


  • truckdriver1402

    And price increases will be met with resistance

    The government for too long has been able to fool the people with the help of the MSM

    “rates would be sky high if not for freedie and fannie” they exalt
    ( noooo, the market would set the rates after the wealthy paid for their homes ( most dont even fiance) the banks would want ,,,,, hmmmm, more business so they could only ask what people were able to pay


    Anything and anytime the gov is involved prices go up up up( college costs anyone???

    get the government out ( not likely) and the market will rebound

    FDR's “help” kept us in a depression for arguably 15 years

    Calvin Coolidges depression ( the one they dont teach you about in school) lasted 18 months because he WOULD NOT BAIL THE FAILURES OUT


    I actually have studied history and some things called facts cant be changed


    • http://blog.redfin.com GlennKelman

      How is the government in the way?

  • Utsava

    I'd suggest the following article on the bogusness of the NARs home affordability index:

    Also, how does this analysis jive with news like “Deutsche Bank Projecting A 40% Decline In NY Housing Prices”?

    • http://blog.redfin.com GlennKelman

      Utsava, I wish I had seen Barry's article on the affordability index: you're right, it's bogus, and we won't use it anymore. I'm a huge fan of Calculated Risk.

      The second article is from 2009. I think it's out of date. Absent a nuclear apocalypse, New York prices are certainly not going to fall 40% any time in the next 24 months.

      • Chrismurphy

        Thanks for the reply. Glad to hear you'll be throwing the NARs metric out the window, it's meaningless.

        I didn't realize the last article was so old, it was passed off to me as if it was recent and it seemed a bit fishy, hence my question.

        Keep up the great work with Redfin!

  • Pauline Wiles

    Well, if Wall Street folks are beginning to talk more positively, that sounds like good news to me.

    I'd be surprised if Real Estate ever becomes as insignificant as groceries in our monthly budgets, especially in geographic areas where the physical supply of land is limited. VC-backed companies in the San Francisco Bay Area are hiring with gusto, and all those workers need to live somewhere.

  • Renting in Mass

    That Big Picture article was what I was thinking of when I poked at Glenn about affordability in the previous post.

    If falling prices constitutes “better,” I hope things keep on getting better ;)

    Anyway, I like to give Glenn a hard time (ineffectively), but I do appreciate these posts. Keep 'em coming :)

    • http://blog.redfin.com GlennKelman

      Renting in Mass, you were right. That index is wrong. We won't cite it anymore. My bad!

  • Chasleon

    Riverside, California, our home values have tanked in the Inland Empire region of our state, but even with these very affordable prices, our bleak California job picture looks dire for any big upturn anytime soon. The state seems to be trying through regulations and taxes to be pushing the population down, starting in Southern California. No jobs, no future for real estate even though affordablility seems to have become a thing of the past. Cheap, cheap, cheap but little activity.

    • http://www.redfin.com Pete Tomaszek

      The IE, like many SoCal locations have been very over developed. The prices obviously reflect that. The great thing about the IE is that the future of US transportation relies on it. The combination of the proximity to the LA shipping ports and the Empire's cheap warehouse space, could cause a small boom in jobs. As more factories push storage out of the over priced OC and La, they will eventually find IE as a their new home.

  • http://www.bradheaveyrealestateappraiser.com Brad Heavey

    It's my opinion that the Inland Empire may be just the right place to be as an investor or first time buyer over the next few months. That is where the jobs will start to grow. Real Estate is a long term investment not a quick fix for a get rich quick investment. Ya I know there are the flippers and they get a good/great deal every now and than but, the man/woman that can hold a property almost always wins.

    Brad Heavey is a real estate appraiser in Southern California.

  • http://www.mauirealestate.com Billy

    Glenn – I couldn't agree more, your eyebrows are both substantial and hairy. In all seriousness, thank you for the interesting post. All markets have their own drivers and influences, but the national trends are certainly intriguing. I'm glad someone else trashed the NAR numbers so I didn't have to. Sometimes it is embarrassing being a member. Understanding that you are most heavily weighted in Major Metro areas, do you have any thoughts / insights regarding “resort” real estate and second homes? Our market has had a heavy dose of REO's and Shorts (50+ % of sales in Jan and Feb) and 40+% in March, but transaction volume is up substantially and we are seeing some signs of life in the luxury market. We too are experiencing frustrated buyers due to inventory challenges. We do indeed live in interesting times…

    • http://blog.redfin.com GlennKelman

      Billy, my only thought about resort real estate is that I want some… (I have no experience analyzing that market, but my guess is that the stock market rally has made a difference for high-end buyers)…

  • http://www.foreclosuredeals.com John Evan Miller

    Unfortunately, this is likely to continue to be a problem as homeowners and new homebuilders are trying to match foreclosure prices–all while the foreclosure market is still growing. Maybe the government assistance that some states are employing to help those facing foreclosure will put a dent in those applying for foreclosures–but either way we have a very long way to go to reach “recovery.”

  • En064

    If you are correct, then explain to us, why are the banks refusing to make timely deal with their short sale properties. If their bank owned inventories are getting lower, why then they would go ahead with foreclosure on more of their outstanding loans. The banks won't sell short sales properties in a justified time, and yet they won't proceed with the foreclosure. I'm afraid the dots don't line up. There has to be a massive amount of shadow inventory the the banks don't want to show in their books. I believe we are looking at years on no growth and without “high paying” jobs, it is just not happening.

    • Matt

      You are absolutely right. Washington, DC is in a bit of a bubble (trust me, I grew up in Montgomery County) because they can create money and jobs out of thin air, and then have the local trickle-down private sector infrastructure boosted along with it.

      But everywhere else in America is a different story — ESPECIALLY along both coasts where prices were extremely overinflated. They will drop some more over the next 6-12 months (after briefly going up this spring and summer) and then they will stagnate for a LONG time…

      I'm not an economist, I'm not a real estate expert… but I'm also not an idiot.

  • Matt

    Wow, you guys predicted an uptick in March sales? What visionaries you are!

    Except… I know nothing about real estate (first time buyer, just started learning about all of this in December) and I predicted the same thing. Why? All you have to do is look at a chart and see that sales dip in the fall and winter PRACTICALLY EVERY YEAR and then pick up in the spring and summer — perhaps people don't like going out and exploring homes during their holidays, in the rain and snow??

    Here's another “bold prediction” for you: sales (and possibly prices) will continue slight increase over the summer months. Followed by another decline in October/November. Call me Nostradamus!

    The uptick says absolutely nothing about the current state of affairs.

    • http://blog.redfin.com GlennKelman

      If you look at the original post, which we linked to, we already adjust for seasonality in our prediction. That March sales topped analysts' forecasts also reflects the fact that actual sales exceeded the expected seasonal bump.

      • Matt

        I hadn't checked that out, so thanks for pointing that out. After reading that article, however, I do have to wonder one thing…

        are you seeing growth across the board (all months/seasons) on Redfin? The reason I ask is because there are a lot of “late bloomers” when it comes to technology; a lot of people are just now starting to wake up use the vast array of resources on the Internet, including real estate ones. If that's the case, I'm not sure that website traffic would make a good predictor of anything… the fact of the matter is that more and more people are coming on board all the time (such as many Baby Boomers who were slow to adopt and have only recently come to terms with the fact that the web is not “just a fad” or “just for kids…”)

        • http://blog.redfin.com GlennKelman

          What's weird is that our business is doing better than our website right now. Usually it's the other way 'round, especially the past few years.

  • Joannaelizabeth123

    Thanks for these newsletters. I was trying to get a grasp on real estate trends and wanting to have a comprehensive fact-based perspective, but that's really hard to do, especially for someone new to home buying like myself. So this is amazing.

    • http://blog.redfin.com GlennKelman

      Thank you! Made my day!

  • Webuyventura

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  • Someguy

    Real Estate will become like groceries, when the fools realize it's a bad way to invest their money. Unless your loaded and can offer cash you'r better off buying CDs.

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  • Renting in Mass

    Here's a fun chart for your viewing pleasure:


    I believe the technical term for that formation is “double dip.”

    I'm going to boldly predict that that line goes down some more.

  • Mayank

    thanks . this is wonderful analysis.. I am not a real estate person but understand (hopefully) the basics of economics, demand and supply part. I am a first time buyer and exploring the market for last 15 days in Washington DC area (northern virginia). I do see that homes are selling fast (may be they were ever going that fast) but still there are lot of homes in the market. In fact I have set up a filter criteria. Initially (15 days back) there were 170 homes available with that criteria, the number of available houses became 180 soon and today i see that there are 205 homes available that matches that criterion.

    What should i conclude?

    Moreover, people around me tell me that this frenzy (if we can call the current buy/sell volume) is because of school ending season and this we see each year. I want to learn whether each year we see such increase in demand during these days or this year is special?

    • Matt

      If you look at historical charts, you will see that sales pretty much always pick up in the spring and summer — I would assume this is partly due to weather and holidays getting in the way of winter sales, and partly due to school issues like you mentioned. I'm from the DC area originally (now in NorCal) and can only assume that sales are even brisker there because the government-fueled economy is a bit of a “bubble” and not nearly as affected as everywhere else in America.

      I am a first time home buyer, too, and what I'm seeing where I live is that low-end properties have a feeding frenzy of vultures if they are even halfway decent, because it's the only price point people can currently afford (and then there are the investors and other capitalists looking into them as well), while mid-range houses in the 350-500k range are all overpriced by a good $50k and will stubbornly sit there on the market for months on end without sellers coming to terms with reality.

      If you want better deals and less competition, I would wait until at least October, maybe even November, which seems to be an annual “low point” for sales and prices, and i predict it will be no different this year. In fact, I'm getting pretty discouraged by seeing so many junky and overpriced properties, and fighting with the other hyenas and cash-offer investors for whatever is leftover, so I'm probably just going to stop looking until autumn. I just offered more than asking price on a short sale, with strong finances and conventional 20% down and asking for nothing (other than normal inspection contingency, but the house seems in good shape so they shouldn't be scared of that), and I'm willing to bet I'm still going to get rejected, so I think I'll just leave this rat race for a little while. It's not like the prices are going to be going up any time soon, I'm just ready to own my own place instead of renting. But not willing to do so when it's financially unsound.

      • Mayank

        Thanks for your response. I had a similar feeling that I should
        come out of this rat race but the only factor that wants me to think otherwise
        is mortgage rates. As a rough calculation, on a loan amount of $400,000 if the
        mortgage rate goes down by 0.1% the home buyer has to pay $10,000 during a 30
        year period.

        I would like to learn how the mortgage rates came down so
        quickly and what is the trend expected to be in the next few months?

        • OC Hunter

          Me again.  Conventional wisdom on mortgage rates is:  ”Lower rates = higher prices”.  It's all about the monthly nut – how much can people afford on a monthly basis.  I would guess this is true in general, but not precisely so.  Many other factors influence prices as well.

          Very hard to predict what will happen to rates in the future.  Only thing certain, is that they will eventually go up substantially (who knows, could be ten years – look at Japans lost decade).  Rates generally follow the ten year bond, which is influenced by the Fed rates.  Fed has the overnight rate near zero for banks.  Fed / Treasury are dumping cash into our system, and running up huge debt in relief programs, buying out bad banking investments at full price (at taxpayer expense).  If they keep this up too long, foreign investors will eventually find a better place to park their money, other than US treasuries, and we will have to raise rates just to keep borrowing.

          Last point.  It would really be better to buy while rates are high and prices are low, then refinance when/if rates drop.  However, there is a way to (somewhat) protect yourself against future rate increases (rates go up, prices go down, now you are under water and can't sell).  The way to protect against this is to ensure your mortgage is transferrable.  This means when you sell, your qualified buyer can get your rate, hence you may be able to convince them to pay more as their monthly payment would be the same as if they bought at a lower price.  Lenders do not typically make loans transferable any more, but you can ask.  The only loans I know of that must be transferable are FHA and VA.  You could go FHA, and still put 20+% down.  I would get a standard conforming rate quote as well, just to confirm rates are comparable.


    • OC Hunter

      Demand almost always increases in the summer.  Don't be fooled many sales graphs are seasonally adjusted.  I have been actively seeking a new house in CA for two years, and finally bought in Feb.

      My advice, figure out what you really want in a house.  Look at a lot of houses.  Be first in with an offer.  Make low offers on over priced houses.  Offer to close quickly.  Increase your offer by 3%, but ask for a 3% contribution to close (helps banks keep the prices higher on REO's & Short Sales).  If short sale, consider working with the listing agent (they can keep the full commission in their office, so they are motivated to get your offer accepted).  Finally, always, always, always get competitive mortgage offers (include one from the lien holder – this can give you more leverage if you need to push out a foreclosure date to finalize close, etc.

      Good Luck!

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  • James Wonneberg

    Won't rising interest rates also affect house prices?

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