Right Now, It’s All About the Inventory (August 2011 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 August Roundup:

Howdy Redfinnians!

Here’s our August round-up of all the big real estate news! After falling to inflation-adjusted levels last seen in 1999 and 2000, prices are stable again, rising in most markets since April. Nationwide, prices increased 1.1%:

Market MoM Change YoY Change Date of Peak Change from Max # of Months
of Increase
Phoenix Real Estate 0.3% -9.3% Jun-06 -55.7% 3
Los Angeles Real Estate 0.3% -3.4% Sep-06 -38.1% 3
San Diego Real Estate 0.2% -5.3% Nov-05 -38.1% 3
San Francisco Real Estate 0.4% -5.4% May-06 -38.2% 3
Denver Real Estate 1.6% -2.5% Aug-06 -10.2% 3
Washington DC Area Real Estate 2.3% -1.2% May-06 -26.9% 3
Atlanta Real Estate 1.5% -4.9% Jul-07 -23.6% 3
Chicago Real Estate 3.2% -7.4% Sep-06 -31.4% 2
Boston Real Estate 2.4% -2.1% Sep-05 -15.3% 2
Las Vegas Real Estate 0.1% -6.0% Aug-06 -59.3% 1
New York City Real Estate 0.9% -3.6% Jun-06 -22.8% 3
Portland Real Estate 0.0% -9.6% Jul-07 -27.9% 3
Dallas Real Estate 1.4% -4.3% Jun-07 -8.4% 3
Seattle Real Estate 0.7% -6.4% Jul-07 -28.5% 4
20 City Index 1.1% -4.5% Jul-06 -31.6% 3

Case-Shiller Price Index Data for June 2011

Even adjusting for the summer surge, prices were still flat. So this is exactly the bottom in pricing that in February we predicted would begin in April, and it is fairly uniform across the West:

Case Shiller Home Price Index - Western United States

Case-Shiller Home-Price Index, Western Markets, Last Five Years

Prices have been less volatile in the East and the Midwest, and DC continues to be America’s strongest market:

Case Shiller Home Price Index - Eastern United States

Case-Shiller Home-Price Index, Eastern Markets, Last Five Years

A Cold Winter Ahead for Home-Buyers

Now the question is, with all the economic uncertainty in the Mad-Max aftermath of the debt crisis, will it last? Once the stock market lost a trillion dollars on August 5, we reported that the number of customers making offers that weekend actually increased. Strong demand held up another week, but then slipped last week by 18%.

About half of this is seasonal — the last bit of August is always slow because of vacations and the back-to-school rush — and the rest we think is genuinely due to economic uncertainty. We don’t think of this as a calamitous drop, and it’s hard to take one week as a trend, but it’s bad news.

But The Reason Prices Are Steady is Because of Limited Supply

The truth is that demand has been weak since the tax credit expired in the summer of 2010. The reason prices have stabilized is because of supply: there aren’t many buyers out there, but there are even fewer sellers.

Nationwide, the number of homes for sale has declined 14.1% since last summer. Our buyers constantly complain about the lack of inventory, and many just give up in frustration. A good deal is hard to find.

The first sellers to pull out of the market were the ones who drove prices this far down in the first place: the banks. More people are falling behind on their mortgages, but foreclosure activity just hit a 44-month low.

The drop in foreclosures is partially because the government made it harder for banks to take people’s houses, and the rest is because the banks decided they couldn’t sell those houses for much anyway.

Shadow Inventory Is Probably Smaller Than Most People Think

So now we see the banks sending delinquent homeowners one notice of default after another without ever actually foreclosing. This tells us that the shadow inventory that has taken on titanic proportions in the popular imagination is smaller than most pundits claim. And the regular human beings we talk to about listing their home for sale are often now deciding to wait a year for better prices too.

We don’t see the market getting swamped with new inventory while prices are low, but we do think that all the would-be sellers will jump into the game once demand strengthens, preventing prices from rising much either. This is why we think prices will stay low for a long time, but not drop significantly further. We’re on the bottom and that’s where we’ll stay.

Low Sales Volume is Mostly the Result of Low Inventory

When inventory is this low, sales are low too, down 3.5% in July, and down even more among foreclosures. The press often reports falling sales and rising prices as a conundrum but both are the result of there being very little to buy.

Real Estate Flowchart

That’s it for August! If you have any comments or questions about a particular area, leave a comment below and we’ll hook you up with the best Redfin real estate agent to pitch in with more local insights. We won’t bother you later, either. It’s our job, so ask away. Have a great August, and thanks for your support!


  • Candice

    Yes, we are serious buyers, but there is nothing out there worth buying and the inventory isn't picking up at all.  Very frustrating.

  • http://www.ietrealestate.com Los Angeles Real Estate

    My concern is this, once whatever needs to happen for demand to increase happens, how are prices ever going to rise with the idiotic appraisers and AMC's the industry has to deal with these days?  When equity sellers decide to put their higher quality properties on the market are we going to have to hear some half wit appraiser tell us that he can only use the comps from the short sale or REO that was such a dud of a property that the prior owner walked away in todays regulated environment where you don't even have to make a payment to keep your house?!?!  At this point of the market people aren't losing their home (2007-2010 was different).  If you want to keep your home in Q3 2011 you don't have to look far for a government program that will allow you to.

    • http://blog.redfin.com GlennKelman

      Love the passion. The appraisers are definitely cautious, aren't they?

      • http://www.ietrealestate.com Los Angeles Real Estate

        cautious is ok but appraising is an art and a science.  Appraisers need to realize that if it were purely about comps and statistical formulas for making adjustments we could do everything with a computer.  If 3 sold comps are for $300k and someone has a super pride of ownership property with beautiful landscaping, historical restorations, completely remodeled etc., etc. that home may be worth legitimately $315-20k even though its 200 sq ft smaller than comps with a 500 sq ft smaller lot.  In the age of the AMC appraiser this can be a ridiculously tough sell unfortunately…

  • http://www.ietrealestate.com Los Angeles Real Estate

    I also think that there is inventory out there but buyers are of the mindset if I just hold out a little longer I'll get a better deal because things as I seem them are only going to get worse (consumer confidence problem)

    • Danstvguy

      LARE .. Agree with this last point about confidence.  Fear in the media and horror stories galore about deadbeats living free in their former homes has made real estate a mystery to most.

  • SoCalHOA

    Glen – I am digging your analysis, but check out this wrinkle. I have a buddy who works for a large property management firm that oversees hundreds HOA's in the Western US (CA, AZ, NV). He claims that the PM firms are foreclosing on 1,000's for failure to pay HOA dues because the banks are so overwhelmed with the number of defaults. They are curing the HOA fees by cleaning up the properties and turning them into rentals. They establish a sinking fund to address any underlying mortgages and are posturing that they are doing the work the banks are failing to do. At some point in time, all of these properties need to change hands and will further put downward pressure on the home prices in HOA rich environments.

    Has anyone in your organization looked at this wrinkle or taken this inventory into account when generating your spreadsheet?

    • http://www.ietrealestate.com Los Angeles Real Estate

      I don't see why the PM firm would do this, most people that aren't paying their HOA dues are ridiculously underwater.  The pm firm can foreclose subject to bloated senior liens that almost certainly have a debt servicing level higher than current market rent.  Even if they are doing this they still have problem because they didn't do anything to re-coop lost hoa monies meaning its difficult for new buyers to get financing because 1) lack of hoa reserves 2) rental to owner occ ratio too high

      as Jim Calhoun so famously said, “CHECK YOUR FACTS, AND COME BACK AND SEE ME!!”

  • Renting in Mass

    You think non-seasonally adjusted (NSA) prices will be up or flat between now and December? I'll take the other side of that bet!

    I'm assuming you're talking NSA prices because all the data you cited is NSA.

    • http://blog.redfin.com GlennKelman

      Yeah, we switched from SA to NSA once Standard & Poor's published an announcement that its seasonal adjustments were unreliable. I think NSA prices will be flat from now to December, within 1% of where they are now. What do you want to bet? How would I pay you if I lost?

      • Renting in Mass

        OK, the  December data will start to be included in Case Shiller in February, so let's revisit when the February numbers come out. If I'm right, you can pay me with props for my elite forecasting skills ;)

        Thanks for making quantifiable predictions. It's more fun that way :)

        Even if you're wrong, I think it gives you more credibility than the weasily stuff that comes from most prognosticators.

        • http://blog.redfin.com GlennKelman

          I was still in bed this morning when I saw the unemployment numbers… and my first thought was RATS, RENTING IN MASS IS GOING TO WIN THE BET! We'll see…

  • Gigax1

    Prices will stay low as pent-up sellers, match up with pent-up buyers as the economy (presumably) improves.  But how about interest rate?  once the Fed start soaking up the flood of money and interest rate start to creep up,  affordability will also put a lid on home price.

  • Gigax1

    Factor in the retiring baby boomers trading down to less expensive retirement communities.  This is a large portion of our population.  And as the government extend the retirement age, less jobs will be available to new & younger job seekers. This means a sustained higher unemployment level – less qualified home buyers.

    • http://blog.redfin.com GlennKelman

      Yeah, we worry about unemployment a lot…

  • Gigax1

    The very idea of the government “incentivising” creation wealth through non-productive rise in home value, rather than activities that produces goods & services will further perpetuate our culture of debt, and keep unemployment high.  Unless,  the government stay out of trying to manipulate free market, let foreclosures proceed, and let home price fall once and for all to it's true market value, less buyers will be able afford buying homes.  The uncertainty will continue to prevent those who can afford to wait for the few properties that list for below general market value as a hedge.

  • Jared Meadors

    By far, the biggest obstacle in ALL markets around the country today is FINANCING.  I hope the days of 100% and 110% financing for anyone with a pulse are gone forever.  That type of reckless lending is part of what got us back to 1999-2000 price levels.  But when a self-employed borrower with $15,000/month in provable income, a 750 credit score, $3,000,000 in equity in various other properties–several of which are owned free and clear–can't find a 20% down, stated income loan–at any reasonable rate–there's something wrong in the marketplace.  I don't work at Fannie Mae but I'd be willing to make a large bet that those type of loans–stated income investor loans with 20-25% down originally–have a VERY low default rate historically–both before, during, and after the crash.  So where are they?  There are plenty of buyers and plenty of sellers–but I'd rather see rates back at 7 to 8% and banks actually LENDING the money than 4 to 5% rates with no chance of getting approved.

    • http://blog.redfin.com GlennKelman

      It has swung pretty far in the other direction. But don't you worry about <5% down loans, backed by FHA?

      • Renting in Mass

        Yeah, it might be touch to get a loan as an investor in high-end properties, but the average home buyer in my area has no trouble getting a 3.5% FHA loan. If 20% down was actually required, the Boston market would come screeching to a halt.

  • Utsava

    Here are some decidedly different takes on shadow inventory:



    • http://blog.redfin.com GlennKelman

      I know there are a lot of folks out there who think the shadow inventory is huge. I used to be one of them and now I'm not so sure…

      • Utsava

        Looks like BoFA is ramping up the foreclosures again… 200% month over month increase:

        • Utsava

          …and more foreclosure news:

          “The number of U.S. homes that received an initial default notice — the first step in the foreclosure process — jumped 33 percent in August from July, foreclosure listing firm RealtyTrac Inc. said Thursday.The increase represents a nine-month high and the biggest monthly gain in four years.”

  • wallet_open

    +1 for inventory as a major challenge but it's the banks who are sabotaging the market.  I finally found something good after shopping for more than 18mo, but have been waiting…and waiting….and waiting for bank to approve the short sale. If the banks can't make it easy to get their distressed homes off the market then that exacerbates the supply problem. Why can't they see that their inability to get out of their own whay just hurts them even more?!?  Price is good (but not rock bottom,i'm doing them a favor by avoiding a foreclose), I have no problem finding a lender, thanks Bernanke for the great rate….so why wont my seller SELL?

    • http://blog.redfin.com GlennKelman

      I've noticed banks getting a little faster on short sales but it depends on where you are and which bank… where are you and which bank has to approve the sale?

  • FrustratedInCA

    We have been actively searching for a home all of spring and summer.
    The problem that we are facing is inventory!!! There are few homes on the market that we are interested in. In our market, prices still seem high. I say this because we are in Stanislaus County, the epicenter of foreclosures, and a jobless rate of nearly 20 percent! Investors and non-profit agencies are buying up our entire inventory. This in turn, is leaving first time buyers, or owner occupied buyers, in the dark. Our market will become a renter’s market if this does not stop! The housing bubble has burst and the mess left behind still needs to be cleaned up for years to come! The HomePath program is a good option but also lacks inventory of homes.

    • http://blog.redfin.com GlennKelman

      Yeah, with HomePath the odds are good but the goods are odd…

  • Ann Jones

    Here in upstate NY, we have plenty of homes for sale, but we have no buyers. We have 5 for sale in our neighborhood of ~ 75 houses, and no one even comes to look. This is a desirable area with great schools. We are looking to move to GA, and we have an inventory of about 10-12 houses that suits our specific needs, but we can't buy there until we sell here.
    It is very frustrating to read that the trend is totally opposite to what we see.

    • http://blog.redfin.com GlennKelman

      I definitely think that semi-rural parts of America, further from the largest cities, are in a different world than the one Case-Shiller describes. After all, the index only measures prices in the 20 largest cities…

  • Mediaguru

    “prices are stable again, rising in most markets since April. Nationwide, prices increased 1.1%”

    I find this to be a fairly disingenuous statement. It may be technically true (ie. prices did not continue decline from April into summer), but at the same time it's probably technically false — your own data shows a 4.5% YoY decline from the same month a year earlier.

    In other words, it is almost 100% likely that the 1.1% increase is seasonal.  Or, to put it another way: I challenge you to point out the last time home prices DIDN'T go up between April and July of that year.

    Summer buying = higher prices. Pretty much guaranteed.

    So, the question is: is a 1.1% increase above or below the norm for growth in June compared to April?  I'm willing to bet it's less than average.  Which means a more honest way of phrasing your opener would be “Prices have abated their descent for now, showing lower than average seasonal gains since April”

    Even if the SA data is not entirely accurate (as you noted above), it doesn't change the fact that there ARE seasonal trends.

    • http://blog.redfin.com GlennKelman

      There are certainly seasonal trends… applying Case-Shiller's seasonal adjustment to the data we see that prices are flat. Stable prices are good news given that most prognosticators claimed in March that prices for the rest of the year would fall another 5% – 10%. A lack of growth may be preferred from your standpoint as (presumably) a home-owner but what actually limits home-buying activity and hurts the economy most is falling prices.
      I checked the Case-Shiller index for the past four years and found that from June – July, non-seasonally adjusted prices fell in 2007, 2008, but not in 2009 and 2010. In general prices fell in 2007 and 2008 and were more stable in 2009 and 2010. You can access this data directly yourself so there's no reason to argue or speculate on this point…

  • Foreverstrong 18

    whether it is unwilling buyers or foreclosed homes or banks holding on to bankrupt properties for a better tomorrow–there is no leadership in government to clean up the mess after 2008 real estate bust. The can is rolling down hill and until after the 2012 presidential election when the political scene is much clearer n the man in charge can make unpopular and gut renching decisions to get rid of this backlogged of distressed houses–it will continue to be of secondary importance when the most urgent priority is to get people back to work.

    • http://blog.redfin.com GlennKelman

      Agreed about partisan deadlock, but what do you think the government should do when people buy at unwise prices and take on unwise debts?

  • Cryingnotears

    I am a victim of your prediction…I read your comment on September of 1999 saying the house market would turn up so if you wanted to buy this was the time. I actively searched for a condo in the x'mas of 1999 and closed in January 2010. Now the bitter fruit I have to swallow is I lost $50,000 of my property value.

    Now you are telling people again we reached the bottom and the prices rose in 3 consective months?

    • Mediaguru

      I'm confused. Do you mean 2009?

  • Cryingnotears

    To Mediaguru — yes, it was 2009. I am sorry for the typo, but every else was true.

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