Home Prices Up 3%, But When Will The Other Shoe Drop?

Here is Redfin’s monthly email newsletter, with a little about Redfin and a lot about what’s happening in the real estate market.

Howdy Redfinnians!

Ready for another roller-coaster ride through the U.S. real estate market? Home prices have for the moment been defying gravity, rising while the global economy sags. When will the other shoe drop? Not ’til September at least. By yesterday Redfin had booked as much 2012 revenue as we got all year in 2011. And weirdly for this late in the summer, new customers keep showing up at our door in greater numbers.

Redfin’s Listing Business Set to Double This Year

Some of Redfin’s growth is because of our own listing business: 41% of our June listings were under contract in less than 14 days. Every home our agents list gets promoted across our site — now for the first time the #1 brokerage site across the 19 markets we serve — and on our top-rated mobile apps. As a result, our listings get double the traffic on Redfin.com, and we’ve been selling ‘em 15 days faster and for more money than the industry average.

When Will the Other Shoe Drop?

But the U.S. economy is having another lions-tigers-and-bears moment, with jobs and consumer confidence in the tank, even as Goldman Sachs finally made its bottom call for real estate, five months late. In an interview last week, Warren Buffett said real estate had been holding the U.S. economy back for years, but now the situation is reversed.

Redfin Real-Time Home Price Tracker

June Prices Up 3%

Redfin’s data for 19 U.S. markets show June prices increasing 3.0% over last year, with one in four homes under contract in less than two weeks; the week before, CoreLogic reported that May home prices increased 2.0% year-over-year, rising for the third consecutive month.

Rates at Record Lows

Low rates and low inventory are creating the price pressure. The interest rate on a 30-year mortgage hit an all-time low last week of 3.56%. This is why cars are selling fast too. The weaker the economy gets, the lower rates go, and the more demand there is for big purchases. Rates below 4% have become like living next door to Michael Jordan: a stupefying fact that we now take for granted.

Interest Rate on 30-Year Mortgage

This makes the demand in real estate deep if not broad. The housing recovery has been resilient because people touring homes right now will have good jobs and good credit regardless of macroeconomic swings. Since only half the country can qualify for a loan, the “haves” are the ones buying, often renting the home to the “have-nots.” Rental vacancies are at a ten-year low.

Inventory is the Problem

The number of homes for sale is down 19% from last year, and down nearly 50% in California and Seattle. The builders have been the only ones with plenty of product to sell, buying half-finished lots for pennies on the dollar then quickly finishing the project. June housing starts just hit a four-year high, and builder confidence had its biggest one-month jump in nearly a decade.

Why the inventory crunch? For years, the banks have provided much of the liquidity in the market, selling foreclosures at prices no other sellers would take. But now that the banks are withdrawing, no one else can fill the gap.

Foreclosures Mostly Keep Dropping

Completed foreclosures are down 27% from their 2010 peak, and seriously delinquent mortgages hit a three-year low. Five years into the housing crisis, foreclosures may bounce around a bit, especially in states where the courts get involved, but most of the people who were going to lose their home to a foreclosure already have. In the California real estate market, the Arizona real estate market and the Nevada real estate market, foreclosure sales declined 42% – 72% over the past year.

Sales Dropped in June, Likely to Recover in August

A lack of inventory is the only brake on sales. June sales were off 4.5% from May, and we think July will be weak too. In our own business, demand was weak for most of June, but took off just before the 4th of July and has been strong since. At a time of year when we’re usually closing deals not meeting new customers, just last week the number of new home-buying customers contacting an agent jumped 14% over our four-week average.

The whipsaw changes in demand make for a wild ride. When Redfin’s board asks why our forecasts move around so much, I just try to look like Emilio Estevez and say “That was then, this is now.” And the other shoe is still on my foot. Comments, questions, just leave ‘em below!

Best, Glenn
Glenn Kelman | CEO, Redfin
Twitter | Blog


  • Randy

    This roller coaster ride is due to constant market intervention by the Fed & Govt. Just like the spike during the era of home purchase credit, HAMP, etc. How realistic is 3+% mortgage rate? Is this going to last? And all the forecosure prevention effort designed to lock homeowners into their underwater mortgage and unable to sell for years to come. We’re really creating a disfunctional market – not too dissimilar to those in 3rd world countries where a small minority can afford to buy homes and be landlords, while the rest have to rent. How about the excess liquidity slooshing around? what will happen once the Fed start mopping them up? Excess liquidity & ultra low interest rates for well-heeled foreign & local investors are also driving prices up. Sorry for the doom & gloom. but I’m so sick & tired of NAR mantra of “this is the best time to buy” said every single day from the start of the bubble to the collapse and up to now. Shouldn’t the underwater homeowners sue NAR for misleading them, just as those scamming stock analyst get sued?

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

      I love this comment Randy, especially the part about home-owners and renters.

  • lefty right

    this article ignores that new nevada laws have almost stopped the banks from foreclosing. however, all that property will be back on the market soon – unless buyers will be coming faster than properties, which is hard to believe. bottom line, a lot of people in nevada are not buying yet.

  • kim

    the government is having the banks hold the foreclosed inventory until after the election so things appear more stable, to those not paying attention and they are many. the gov want their amateur president to stay in the white house. after the election, you know what will hit the fan when all those foreclosed properties are dumped onto the market. God save our Republic and the people.

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

      Can we make a bet, based on the number of foreclosures for sale in December 2012? I am betting it will be lower than December 2011, even after the election.

  • eastbay19

    Can someone please tell me why my comment appeared earlier today and was then removed?

  • eastbay19

    When I received this blog post as an email, the phrase ‘the have withdrawn’ was originally ‘the banks have left the building’. I guess it was supposed to be a light-hearted reference to ‘Elvis has left the building,’ but it’s also a convenient way of sidestepping the fact that the banks are withholding inventory and slowing down foreclosure processing in an effort to keep bubble prices from deflating more. And in fact, along with the fed’s artificially-low interest rates, they’re creating another mini-bubble, at least here in Oakland (though it’s obviously not as extreme as the one leading up to the 2008 financial crisis).

    Here are some raw data for Oakland SFRs:

    Total number of active listings: 390 (per Redfin, July 16)

    Total number of REOs: 1687 (per Realtytrac, July 22)

    Number of active listings of REOs: 33 (per Redfin, July 22)

    Houses scheduled for auction: 814 (per Realtytrac, July 22)

    Preforeclosures: 1119 (per Realtytrac, July 22)

    Total Oakland SFRs in the foreclosure pipeline (not counting the ones currently on the market): 3,587. That’s over EIGHT TIMES the number of active listings.

    What happens when the artificially-low interest rates inevitably rise in a few years? Unless there’s a sizable economic recovery, or a huge supply of upper-middle class families willing to overpay for mediocre houses in so-so neighborhoods here in Oakland (as there seems to be now), house prices will decline, and more loan-owners will be underwater. Somebody please correct me if I’m wrong.

    Doesn’t sound like a healthy market to me. And it’s certainly not even close to the ‘free market’ lots of folks like to blather about. I’m pretty much priced out of the mid-tier market, and yes, I’m frustrated (to put it mildly).

    Some folks, like the author of ochousingnews.com, claim that for every Preforeclosure we know about, there are as many as 2-3 more loan-owners that are in default but aren’t counted because the banks have not issued a NOD. This is the shadow inventory, and it’s part of the banks’ manipulation of the market.

    Randy: I agree that the real estate market is dysfunctional; I personally take it a little further and say that it’s corrupt.

    As for the NAR misleading people, my impression is that it’d be a hard case to argue from a legal standpoint (but I’m not an attorney). I heard the word ‘fraudulent inducement’ brought up in the context of predatory mortgage lenders, but when I looked that term up, it seemed to me it would be difficult to prove.

    I’m curious whether banks could be sued for anti-competitive practice (i.e., colluding to fix the market) for withholding inventory.

    Remember, the goal of realtors and sites like Redfin is to sell houses. The NAR has a well-documented history of ‘mis-statements (if not outright lies), one of the most egregious being last fall or winter when they admitted they ‘overstated’ sales data for the previous five years or so. It seems to me understandable that Redfin would side-step the issue of market manipulation – it might lead more people to hold off buying, or even to raise their voices in opposition to the corruption.

  • http://www.offshorecompanyexperts.com/en/index.html Rachel Sinha

    Great post! Personally, I’m really impressed! I love the way you write your blog!

  • reality dude

    when real estate is very bad [in 2010/11] pundits predicted that it would take 2/3 decades to recover or would ever recover at all. Now things in real estate is looking up–less sellers, prices moving upwards, confidence that it has hit bottom and property prices begin to rise . My personal experience when I made the plunge and bought last year serves me well- with the political uncertainty passing in November, property prices will explode again followed by reduced unemployment and more young people having families and needing a place of their own…. don’t be negative . Look back at your predictions for 3rd quarter 2012-you were wrong and still wrong. Real estate has no where to go but up NOW. Cliche— you cannot manufacture real estate n USA has climbed to the top of the hill and see the sunrise…..

    • Randy Lee

      Yeah yeah yeah…. Remind me of used car sales pitch. Seriously, i just wish for a normalized market were people make buying decision based on their housing need rather than speculate whether or not they’re paying too much, and seller able to sell when they need to, and not have to wait and hope for price to go up. As far as demographics, I believe the soon to retire baby boomer gen is far bigger than the younger people. And as we know, people tend to downsize as they retire. Don’t confuse artificially induced factors propping up house price with normal free market fundamentals. interest rate goes back up to 6.5% will mean a 100% increase in mortgage payment. Income would have to rise significantly to maintain the same affordability. The so called rental parity will change dramatically, and cash investors will also go away as alternative investment began to offer better return. Just like you, i purchased foreclosed properties in the last two years at very low price, and happily collect 10% revenue. I would, however, not buy these properties if they were higher that what I paid for when I bought them.

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

        That’s a good point about the demographic shift as boomers retire…

  • http://redfin.com/ Eric Gideon

    Hey, eastbay19. It looks like your earlier comment got caught by the Disqus moderation system (perhaps because it had a link in it). Sorry it’s been such a pain! We’re looking into it and in the meantime I’ve placed you on a whitelist so you don’t get flagged as a false positive in future replies.

    • eastbay19

      Thank you!

      • MarkB

        Excellent post

      • http://redfin.com/ Eric Gideon

        Yeah, Disqus can be a bit aggressive sometimes. :) Please let us know if you run into any other issues!

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

    The goal of Redfin is to earn your trust, not sell a home, because we benefit by taking share from other brokers more than we do from encouraging people to buy a home. Many, many times we have said the market was declining and would continue to decline, mostly because of foreclosures. I have been on national TV saying the market is like a fat man who can’t get up.

    I changed the sentence about banks leaving the building only because it was a mixed-metaphor (I also referenced a gap).

    You are right: there are far more owners in default than there are foreclosures for sale, but we believe this is because banks are encouraging more of those folks to sell short or re-finance.

    Almost every economist now agrees with us.

    • eastbay19

      From what I’ve read, many loan-owners are choosing ‘strategic default’ rather than short sale – and the banks certainly can’t force them to sell. People realize the banks are delaying foreclosure as long as possible, so they can live payment-free for years before getting booted out. Since the government is backing many (most?) of these loans, you and I are footing the bill for this insane game of ‘chicken.’

      As for re-fis, in places where the bubble was really crazy, that can be very difficult. I have a friend who bought a fixer in a so-so area before the bubble really took off and did a nice renovation. Despite this, his most recent refi was an expensive ordeal. He almost got turned down because the appraisal value was so low (it seemed way below market value, even to a skeptic like me). So I doubt many of the bubble-era buyers around here will be able to re-fi because the prices they paid were so insanely high.
      And perhaps the salient point of my post was how many houses the banks already have in their possession compared to the total number of active listings. These could potentially be on the market right now if banks weren’t artificially constraining supply. Contrary to what most of the media says, low housing prices are a GOOD thing (except for bubble buyers, realtors, flippers/speculators, and local governments who went nuts spending during the bubble).