One day more than half a century ago, Stalin stopped sending food trains to Siberia, leaving prisoners and guards alike to slowly realize they had to starve or walk a thousand miles for food.
This is how it can feel to be a real estate broker. Other times, it’s like being Augustus Gloop at Willy Wonka’s Chocolate Factory. Demand comes and goes just like that.
It’s easy to panic, especially before you figure out the difference between seasonal zigzags — in northern towns, closed transactions usually triple from January to June — and real market changes. But watching the market move is also really interesting.
Now you can see why we think so, as Redfin is publishing demand data from our own business in a new monthly analysis of thousands of customers touring homes and signing offers with Redfin agents across 18 U.S. markets.
We’re calling the analysis the Redfin Real-Time Demand Pulse.
As the only major real estate broker storing a record of every tour and every offer performed by its agents, Redfin can use data about our own demand to project sales volume for the U.S. without waiting 30 – 45 days for a sale to close, or an additional 15 – 30 days for the county to record the sale.
Sometimes our projections will reflect Redfin’s market-share changes; Redfin has mostly been growing more than 50% year over year. But from month to month the numbers are more likely to reflect broader market shifts.
The Demand Pulse is part of a major strategic initiative at Redfin to give consumers the most complete, real-time portrait of what’s happening in the market; it’s the third new report Redfin has released in the past four weeks. Here’s the full schedule:
- Redfin Real-Time Demand Pulse: the first week of every month, the number of tours and offers completed by Redfin agents.
- Redfin Real-Time Price Tracker: the second week of every month, inventory and sales numbers straight from the Multiple Listing Services agents use to list properties and record sales.
- Redfin Real-Time Buyer & Seller Surveys: survey results from thousands of home-buyers, sellers and real estate agents currently active in the market, published when available on the third week of every month.
July Real-Time Demand Pulse
We have arrived at that second moment and, while June has slipped, it hasn’t slipped as much as it usually does: for the week ending Saturday, June 30, the number of Redfin customers signing offers to buy homes declined 15% from the pace set the week prior to Memorial Day.
Fifteen percent sounds pretty bad, huh? Well, the demand among home-buyers touring homes almost always peaks in April, and signed offers usually peak in May, so what we look for in June is simply the size of the drop in early-stage demand, not whether there is a drop.
And this year, the size of the drop has been smaller: 2011 offers declined 20% from the pace set just prior to Memorial Day. For the last four weeks compared to the four weeks before that — basically June vs. May — offers declined 3% this year compared to 8% last year. And this year offers ticked up 5% in the last week of June, whereas offers last year at this time declined 2%.
|Redfin Customers Signing Offers||2011||2012|
|Last Week Compared to the Week Before Memorial Day||-20%||-15%|
|Last Week Compared to the Prior Week||-2%||+5%|
|Last Four Weeks Compared to Four Weeks Prior||-8%||-3%|
These early indicators suggest to us that August sales volume will increase only modestly compared to last year; the market has improved but still has ups and downs. With a few weeks left to get homes under contract for an August closing, the question is whether offers will keep dropping as they did in the middle of June, or pick up steam as they did last week? A mid-week holiday plays havoc with predictions, but so far this week has been surprisingly strong.
Another reason we expect offers mostly to remain steady is that the number of customers touring homes has been fairly steady:
Touring customers increased across the board over the last four weeks of 2012, whereas in 2011 these numbers were already falling:
|Redfin Customers Requesting Tours||2011||2012|
|Last Week Compared to the Week Before Memorial Day||-3%||+7%|
|Last Week Compared to the Prior Week||-5%||+2%|
|Last Four Weeks Compared to Four Weeks Prior||-3%||+2%|
While the ardor for bidding wars has cooled in some places, the steady stream of touring customers tells us the demand is still out there; home-buyers just can’t find a home they like. Like a vast herd of hungry goats, they move from hillside to hillside in search of something to eat.
Redfin’s high level of tour activity makes us hopeful about September closings. It all depends on how much there is to buy. All year, the limiting factor on offers has been that there’s nothing to buy, with inventory off during the peak months of demand by as much as 50% in some markets. As home-buyers rushed into the stores, the shelves were half-empty.
This is the reason we have been very confident about stabilizing prices, far earlier than others, but less so about sales volume or real estate’s contribution to the overall economy. One way to test whether inventory is what’s limiting sales is to see if the sales numbers diverge in August, with re-sales flat as new-home sales keep rising. When demand is strong and supply is limited, the builders who do have homes to sell — some do, some don’t — should be the ones who do well.
Where’s the inventory? As banks have fewer foreclosures ready to sell, regular home-owners aren’t picking up the slack. In lieu of listing their home for sale, owners can re-finance the place — or just wait for the teaser rate on their 2007 loan to re-set at what has turned out to be a far-lower rate — then find a renter.
And finding a renter isn’t hard to do: after four years of short sales and foreclosures, an unprecedented number of Americans can only rent, not buy, regardless of price-to-rent ratios, just because of their low credit score. As a result, owners can get $300 more in rent than their mortgage payment, all while waiting a few years to see if prices improve.
We’ll keep you posted on what happens next. Remember, Redfin may do better or worse than the market. But usually we do better.