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 Redfinnians!

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 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:

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

I was surprised to see DC-area prices slip in February:

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