Want My House? First, Take My Poodle (May 2012 Roundup)

Howdy Redfinnians!

Strap in for Redfin’s monthly round-up of U.S. real estate news! This month is action-packed, so we’re going Moby-Dick on you guys, with an epic market survey, crammed full of gossip, poodles, and inside baseball.

Prices Up, Inventory Down, Sales Volume OK, Rates at Record Lows

Let’s start with the numbers since the numbers are good. We already have access to broker-only data on how the market moved in April 2012, and the eye-popper is a big drop in the number of houses for sale. For the major cities in the West, the April supply of listings sank below three months:

County # For Sale YoY YoY Price Change MoM Price Change # Sales YoY # Sales MoM Months of Supply
San Francisco -39% 8% 8% -2% -14% 1.7
Silicon Valley (San Mateo) -48% 2% 3% 8% -10% 1.6
Denver -49% 17% 13% -5% -1% 2.0
Phoenix (Maricopa) -37% 21% 5% -10% -5% 2.1
San Diego -45% -1% 2% 8% 6% 2.2
Orange County -45% -3% 0% 17% 0% 2.4
Los Angeles -39% -4% 2% 3% -5% 2.5
Northern Virginia (Fairfax) -12% 3% 3% 21% 18% 2.6
Seattle (King) -40% -2% 6% 3% 4% 2.6
Sacramento -35% -2% 2% 2% -8% 2.8
Portland (Multnomah) -29% -1% 1% 16% 15% 2.8
Washington DC -17% 16% -1% -30% -28% 4.3
Las Vegas (Clark) -20% -4% 1% 1% -11% 4.8
Baltimore (Balt. County) -21% 3% 11% -7% -8% 5.1
Boston (Suffolk) 24% 17% -4% -3% -8% 6.1
Chicago (Cook) 7% -4% 3% 12% 1% 8.5
New York (Westchester) 3% -1% 0% -6% -8% 15.4
17-County Composite -23% 4% 3% 2% -3% 3.3

Redfin’s Data for April 2012 on Single-Family Home Sales in 17 Urban Counties
We measure price changes in terms of median dollars per square foot.

Three months is low. If supply dips below six months, it’s considered a seller’s market.

Bidding Wars Are Back

And now the laws of supply and demand are kicking in. In San Francisco, Seattle, Southern California and Washington DC, the Wall Street Journal reports that bidding wars are back. Redfin clients in DC just won a deal by adopting the seller’s toy poodle, “Buddy.” An agent just wrote me to say that Inland Empire homes move in 50 hours, not 50 days: “I can’t even go out for a sandwich without losing another deal.” The shacks now selling for more than $1 million will make you cry.

Appraisal Roulette

Lenders are understandably nervous about these prices. Lots of deals are dying at the appraisal, with the bank refusing to loan money for a house under contract because the appraiser says it’s overpriced. Our DC listing agents have seen nearly half their deals kyboshed by a lender’s low appraisal. In some markets, agents are removing the lock-box immediately, just to be sure to walk the appraiser through the home in person.

The Bottom? We Hit That Last Year

Eventually, higher prices will show up in the historical data used by appraisers — and in the indexes used by economists too. The Wall Street Journal reports that “nearly six years after home prices started falling, more U.S. housing markets appear to be nearing a new phase: a prolonged bottom.”

According to our own analysis of 17 urban counties, we aren’t “nearing” the bottom: we hit it last year. From April 2011 to April 2012 in the mostly coastal cities we serve, house prices increased 4%. This is the first year-over-year gain we’ve seen in a long time:

17-County Median House Price, $/Square Foot

No one else has April data yet, but the CoreLogic index only declined .6% in March compared to last year — once you exclude foreclosures and homes sold by underwater owners, CoreLogic prices actually rose .9%.

At the Bottom, Home-Owners Hesitate

So why aren’t more people selling homes? Well it’s hard to replace a million foreclosures per quarter, which is how fast the banks were once putting homes on the block. Most home-owners aren’t willing or even able to sell at the prices set by the banks. Having tanked the market, the banks no longer have so many foreclosures to sell.

The Shadows Recede

The rate of seriously delinquent mortgages is at a three-year low, but — fair warning — still stands at 3.67%, far above the normal delinquency rate of 1%. Foreclosures are down 19% year over year, and the number of foreclosed homes that banks still have to sell has declined over the past year.

Freddie Mac, the government institution that ends up owning lots of foreclosures, reported that its losses from the sale of foreclosed homes declined by 33%, and Fannie Mae is now in such good shape that for the first time since 2008 it’s paying a dividend.

What about the foreclosure tsunami everyone expected after the robo-signing lawsuits settled? It never hit our shores because the settlement forced banks to ease up on underwater home-owners and approve more short sales.

For Rent or For Sale

That leaves only conventional home-owners to hang a yard-sign — and most won’t do it. We talk to lots of would-be sellers who now believe time is on their side, and decide to hold off a year before listing their home.

With the apartment vacancy rate across 82 markets at an eleven-year low and renters coming out of the woodwork, even the folks who do put their house up for sale sometimes also try to find a renter at the same time, to see if someone else will pay the mortgage for a few years while the property hopefully appreciates.

Since the rest of the market is flat-footed, home-builders are the only ones with plenty of product, which is why the biggest builders just reported huge sales increases over last year, up 43%, 26%, 40% and 37%.

So Where’s the Sales Volume?

But home sales overall aren’t up that much, only an anemic 4% in March. Just because it’s a competitive market doesn’t mean it’s a hot market. The places where the market is most competitive — like Washington DC, Phoenix and San Francisco — are where sales volume is actually declining:

Change in Single-Family Home Sales Volume: 4.11-4.12

When demand is high and inventory is low, it’s sort of like trying to drive a Maserati on a Matchbox track: there’s nowhere really for buyers to go. The rate at which we take our own buyers on tour dropped 2% last week after a month-long plateau; like everyone else, we’re putting record numbers of homes under contract, but wonder if demand will keep building through the summer.

What’s Driving Demand? Interest Rates

Why are so many buyers anxious to buy now even when the pickings are slim? Rates. Over and over again, I’ve worried that, despite government promises, rates won’t last. Wednesday, the Mortgage Bankers Association reported the lowest rates on 30-year loans in the history of its survey:

U.S. 30-Year Fixed-Rate Mortgage Rates

But there’s another paradox here. Money’s cheap but it’s not easy. We just had a buyer worth $3 million get rejected for a $400,000 loan for lack of a steady paycheck. Right now, about half the country can’t qualify for a loan.

And rules requiring more lending documentation worked out fine in 2009 but the banks are struggling to keep up now that the market’s moving faster. Many sellers want the buyer’s loan approved in a week, and underwriting can’t swing it. In Southern California, our buyers are getting pre-approved for a loan not just by the lender, but by his underwriter too.

OK, that’s it! Comments, questions, just post in the comments section below, where the fur usually flies… And thanks for your attention, and for giving Redfin a try.

Best, Glenn

Discussion

  • Yashma

    [prices actuall rose] “once you excluded foreclosures” reminds me of “Once you exclude murders Washington DC is the safest city in the nation”

    • http://blog.redfin.com/ GlennKelman

      Touche! But if you are selling a house and you aren't a bank, it's a material fact that you are more likely to get a higher price this year as compared to last year, even though your listing will still have to compete with foreclosures on price.

  • David Losh

    Sales data is so last decade, it's ridiculous.

    Many people bought into the bubble years in 2005, 2006, and 2007, even into 2008, but did we really have a bottom to the Real Estate market in 2009, 2010, 2011, and 2012. We hear the same thing year, after year, and then in June, July, and August reality sets in, prices stabalize, then decline, just a little bit.

    The elephant that is in the room is the spike we had in Real Estate prices. Real Estate is like a cruise ship in the financial markets that can turn on a dime. The fact we had bubble, the fact Real Estate prices rose, then crashed so fast is the very reason to ignore Real Estate sales data.

    This is just another set of Real Estate sales hype that means nothing to the people who will lose, and have lost equity, by being buyers, and sellers in to day's market.

    A seller loses equity if they sell what they have, and buy with a mortgage; they start the whole amortization schedule over again. A smart seller today would be paying down the principal balance as fast as they could to build equity. Of course they could sell, and rent, then bank the money, but they will get a higher return by paying off the family home.

    Buyers should be especially wary today of buying into a concept that there is a bottom to Real Estate prices. Real Estate has a core value that is being corrupted by this transition between owning, and renting.

    This is just a comment on a blog, but buyers should look at broader economic events, and make offers on property accordingly. There is no rush to buy into some one elases problem.

    • http://blog.redfin.com/ GlennKelman

      David, you have read Bill McBride's analysis on whether current home prices are higher or lower than the historical rate of appreciation due to inflation and population growth?
      http://www.calculatedriskblog…. 
      He argues that prices have come back into line with the historically sustainable trend, but may overshoot. Bill is a good economist and his Calculated Risk blog is, to my mind, the best source for data on real estate prices, sales volume and inventory. 

      By the way, I don't understand why prices can't reach peaks before a crash, or bottoms during a correction. Do you think prices will continue declining indefinitely?

  • JB

    People are forgetting that banks own somethig like 80% of all homes for sale right now.
    There needs to be a new paradigm of looking at this market; It has split into two. Bank owned and privately owned homes. These are two very different sellers. I don't have the answer to our delima, but then again neither does anybody else! So we can continue being led by the “old guys” who speak with a very authoritive tone. Or wake the F@&k up and see what the banks are doing. –SLOWING SUPPLY TO RAISE PRICES! The old guys running the Banks are the ones who are attempting to establist “a price bottom” by limiting available supply to a smaller flow rate, so to speak.. Dont forget about the resivour theyre still sitting on though. Or maybe do. And buy now because you are a very smart sheep. Just dont be upset when you see behind your shepards curtin, to find he's reading a book on goat herding. … Ya, that just happened. Sorry.

    • http://www.facebook.com/people/Lenny-Noybwhy/100003812628635 Lenny Noybwhy

      Right – on.  I have been wondering whats up with the banks.  Is there some secret Washington bailout theyre waiting for?  They have to be smart enough to know prices going up for 5% will not sustain  the 95% left when they decide to sell.  So whats the hidden agenda. … (rhetorical i suppose).  Thanks 

  • Thedrew

    Glenn,

    Where can I get some of that Kool-aid?

    Love the DC comment. Right on the money.

    Look, if you want to pick up some cred go with reality not some fabricated story. It's a buyers market (all things considered) and will be for a very very long time.

    -Drew

    • http://blog.redfin.com/ GlennKelman

      Drew, have you tried to buy a home recently in a major American city? Do you speak from personal experience or based on other data? We have not argued that there will be a significant price increase, but we have argued that prices have stopped falling. It's fine to disagree with that projection, but if so just make the call. By how much will prices decline this year, and where?

    • pactime

      Wow in our personal experience right now in metro San Diego, we the sellers are strongly in the driver's seat having received multiple offers and have become involved in a true bidding war within 4 days of listing our house last week.  The problem and what everyone in our current deal is concerned about is appraisal.  No one believes it will appraise to the highest offer given the sparse and weak comps around the neighborhood along with the high unpredicitability of any given appraiser.  These buyers could very easily afford what they're offering as they have 20% down, have stellar credit rating and are pre-approved well above the price of our home.  And really, that ought to count for something in the appraised value, but alas I'm afraid it won't given the rigidity of the system these days.

  • Tanassej

    In my area most of the homes on the Redfin local maps are all pending…and if they are pending they're still on the books as distressed…I am seeing building on lots that have been vacant for 4 years..single family home construction builds….prices are flatlined but theres a big notch up coming soon..a clear! paddles! sort of wake up call….I never thought we'd see a 30% plus increase in sale prices in Phoenix this soon..be a doom and gloomer only works against your psyche..being a home owner has lots of advantages besides appreciating price…if you're making your payment every month and love where you live..the heavy lifting of depreciation is over…five to seven years out you'll be really glad you kept your family home..kept it nice..and paid it down…while the liar loan run-aways and trashed credit fools living in cheap rentals lick their wounds…

  • http://twitter.com/SocalFrank1 Frank Alvarez

    The data is now starting to reflect what we in the trenches have been seeing since January. The market has turned and decidedly so. Now maybe that the data is out and news outlets are reporting some positive housing news, buyers will realize that while yesterday may have been better to buy then today, today is better than tomorrow. There are still challenges though. The banks lending practices and ridiculous documentation requirements will keep credit worthy home buyers out of the market for the time being, but that too will pass.
    The increases in prices we are seeing are nothing compared to the bump we will see after year end when the IRS waiver on debt forgiveness for short sales disappears; by then, distressed properties will again become a small fragment of the market as those who were once underwater on their homes realize they once again have regained some equity.

  • Not Renting in Mass

    Maybe it's my mortgage talking, but I thought Glenn's assessment of the data this month was reasonable and justified by the data.

    • http://blog.redfin.com/ GlennKelman

      I can now die happy nRiM!

  • http://www.facebook.com/people/Lenny-Noybwhy/100003812628635 Lenny Noybwhy

    I really like the short version of the news:  The banks are holding on to the propertys so the inventory is down.  Demand is up due to interest rates.  Supply / Demand.  

    • jr

      exactly!

  • http://profile.yahoo.com/P6YZDN2COLJB6IQ4ISFLDCBRYA katklaws

    Let's see now.  People have really no memory of WHY the housing market crashed.   Remember, remember the overinflated prices — by both the banks, mortgage lenders, and let's not forget the appraisers who fraudently overpriced homes.  All bedfellows.  That is the reason why there is more documentation than ever before.  (I wonder if that means anything anyway.  Just more paperwork.)  Interest rates are still low, but buyers are still scarce.  A new buyer can now take their pick:  Foreclosed homes, short sales, residential that is of lesser value, and also newly built homes.  I think you would really have to be a fortuneteller to figure out when this will all level out

    • http://blog.redfin.com/ GlennKelman

      I agree, I am glad there is more documentation. Nick Timiraos at the WSJ makes a good point that no-documentation loans were available a decade before the bubble, but just became much more widespread in 2005…

  • http://www.mungo.com/charleston/ David Jack

    Very important statistics. The post is very informative.

  • http://www.ocrealestatefriend.com/ Deb

    yup its like people already forgot what happened 3-4 years ago.

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  • jr

    what about the plethora of abandon properties? Every shortsale I have looked at has been vacant for over 2 years and they still aren’t closing and remain in pending status. they talk about low surplus but there are over 5000 vacant properties. someone is trying to for the market up to 2005 dollars.

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