Big News Redfinnians!

All the big monthly real estate numbers came out over the past 24 hours. December prices fell. January sales volume rose. The number of people borrowing money for March and April purchases increased. The number of properties going into foreclosure is falling.

Our own business went crazy January 1 — mid-February, then things calmed down a bit last week. Buyers have come back from the holidays with more urgency than we’ve seen since last April’s tax credit, but often complain there’s nothing good to buy. Lots of bidding wars in California and DC, fewer elsewhere.

Putting all that together, we think the market’s strengthening. We expect January and February prices to fall, then increases in March and April. We’re not making any long-term predictions because interest rates have finally started rising, with some economists expecting 2011 rates to increase from 5% to 6%.

Prices Drop 2.4% in 2010

OK, let’s dive into the data! The Case-Shiller index for December home prices showed broad declines across most of the U.S., with prices sinking to levels last seen almost eight years ago, in June 2003:

A Rocky Bottom or Another 25% to Fall?

The two economists behind the Case-Shiller index differed in their outlook for what’s ahead, with Karl Case arguing the market was at a “rocky bottom with a down trend,” while Robert Shiller saw “a substantial risk” of 15% – 25% declines.

In the West, only San Diego saw year-over-year price increases:

In the East, only Washington DC saw year-over-year and month-over-month price increases:

Why Has Redfin Been So Bullish?

We’re one of the only ones who are more optimistic. We recently wrote in the Wall Street Journal that housing numbers through February would be “woeful,” but that we expected the double-dip to stop dipping in March.

Do we still feel that way? Mostly. Demand was stronger two weeks ago when we wrote that article, but it’s still pretty strong now. New Redfin customers increased only a modest 6% from one four-week period to the next. Over that same span Redfin customers signing offers has increased an eye-popping 54%.

Nationwide, existing-home sales in January increased 5.3% compared to January last year. Over the past four weeks, mortgage applications for home purchases increased 1.6% — and that’s after adjusting for the seasonal rise in activity we expect this time of year.

While demand is rising, the supply of distressed homes is falling. Mortgage delinquency rates fell 11% in the last three months of 2010, mostly because banks have become more aggressive about modifying loans or approving short sales to avoid a foreclosure. Year over year, foreclosure filings have decreased 17%.

The question is, will the market recover before interest rates rise? Rates hit 5.05% last week before sinking down to 5%:

The Wall Street Journal reports that rates may reach 6% by year-end. Oh and did we mention all the other bad stuff that could happen? Mideast turmoil, the possibility of a government shutdown, a six-month jail term for Lindsay Lohan? Pandemonium.

But we think everything’s going to be ok, and that it will actually get better, at least for a little while, if not for a long while. What’s your take? Leave a comment below and let us know! And thanks as always for your support!

Best, Glenn

Happy Holidays Redfinnians!

The latest figures on real estate prices came out this morning, with September prices declining everywhere except Washington DC and Las Vegas, by an average of .7% nationwide.

As we predicted, October sales volume also declined, by 2.2%. Interest rates ticked up just before Thanksgiving to 4.39%, and have stayed put since.

But after spending the whole year predicting a 2010 market drop, Redfin’s confidence in spring 2011 is growing. Our November and December revenues are 10% stronger than we expected.

Right before Thanksgiving, customers signing offers ticked up 3%. This is probably just an aberration but it’s very unusual this time of year.

There are no data to support any price increases over the next three months and longer term, everyone agrees the housing market is going to follow the overall economy, so we’re hardly ones to guess what will happen next.

But we’ve made our own bet: after launching Vegas — which has really taken off — and Austin, Redfin is trying get Denver, Philly and Dallas up in January. And we’re hiring a lot of engineers.

Our round-up of all the real estate numbers on the web in November is below. Keep your fingers crossed. We have a lot to be grateful for in 2010.

Best,
Glenn

Home Prices Decline .7% Nationwide

Let’s get right to it. The Case-Shiller index declined for the second straight month, and the news was bad almost everywhere:

Since Case-Shiller indexes are based on three-month averages, momentum shifts tend to be lasting; price declines will almost certainly continue until January at least, and U.S. real estate prices may soon dip below the bottom we saw in the spring of 2009:

How much has changed? In June, 15 of 20 Case-Shiller markets had seen prices rise year-over-year, but as of September, only 5 of 20 cities had held on to year-over-year gains.

Sales Volume Declines 2.2%

As we predicted last month, October sales volume declined, by 2.2 percent since September and by 26% since October 2009, when sales were surging prior to the initial deadline for the first-time home-buyer tax credit. October new-home sales declined 8.1% since September, and 29% since the prior year.

Notwithstanding Redfin’s optimism about our own business, the downbeat new-home sale numbers are an accurate forward-looking indicator for U.S. real estate, because new-home sales figures are based on just-signed contracts, whereas the actual closings may take another 30 – 300 days.

Foreclosure Filings Down, But Banks Keep Selling the Properties They Already Have

We used to worry that a second wave of foreclosure filings was headed our way in 2011. Now we’re hopeful more of those bad loans might be modified. Foreclosure filings declined by 4% in October, mostly because the big banks had to hold up on some foreclosures due to the robo-signing scandal.

Interestingly, banks don’t have any second thoughts about selling properties they’ve already foreclosed: the number of bank-owned properties being put up for sale actually increased in October.

But as Joe Nocera argued in the best article about this whole mess, we are hopeful that the scandal will encourage banks to pursue loan modifications for more of the home-owners still hanging on. If distressed inventory continues a long-term decline, it’ll help the market recover. If on the other hand the scandal blows over, having only slowed down the foreclosure process, it’ll delay a recovery. The jury’s still out.

Interest Rates Tick Up

Many real estate agents keep hoping that an uptick in rates will jolt home-buyers into realizing that homes have become more affordable. The week before Thanksgiving, interest rates ticked up from 4.17% to 4.39%, but were steady last week.

We still don’t see much evidence that rates will take off, which means home-buyers will probably take their time until some pretty new homes hit the market in the spring.

And that’s the round-up for this month. Leave a comment below and give us your take. Stay warm this winter and thanks for all the support!

Howdy Redfinnians!

Here’s your latest roundup of news about home prices, which is mixed: August prices were down 0.2% from July, September sales volume was up 10% from August, and third-quarter foreclosures ticked up 4% compared to the second quarter. Interest rates are still way, way down, averaging 4.21%.

The hangover from the tax credit is over. Normal, regular real life isn’t so great just now, but it isn’t so bad either.

Everybody asks us how the robo-signing foreclosure freeze is affecting the market, and the truth is it’s not so far. We’ve had only one deal go south because the bank wanted the foreclosed property back. We expected to see fewer bank-owned listings activated, but in six of the eight markets we looked at over the past six weeks, the proportion of bank-owned listings being activated actually increased.

Meanwhile Redfin is rolling out this week a fancy new visualization of how listings are clustered across big cities. The clusters when clicked explode in this really cool way. And we’ve posted interactive versions of the forms used to estimate loan costs and close deals, as well as a room-by-room photographic guide to inspection problems, so you can really understand what you’re signing.

On Thursday, we’re opening Las Vegas and Austin for Redfin search. Overall our business is on pace to nearly double revenues again this year.

After Tax Credit Expires, Prices Finally Soften

As we predicted last month, the Case-Shiller data out this morning show the year’s first month-over-month, nationwide drop in home prices.

Only Washington, Chicago and New York posted gains, while San Diego dropped for the first time in 15 months. After reaching bottom in May 2009, Phoenix is in trouble again, losing 1.3% this month, and posting its third straight month of price declines.

September Sales Volume Ticks Up 10%

September sales volume increased 10% over August, but this was partly because August was so dreadful, and because the Realtor data includes a seasonal adjustment that boosts September numbers (according to our own, unadjusted figures for the market, Seattle, Bay Area and Washington DC sales volume actually dropped). Inventory declined from 12.0 months supply in August to 10.7 months in September.

Redfin’s Early-Stage Demand Up 10%, Offers Down 8%

Judging by Redfin’s own business, we have been cautiously optimistic, as more and more home-buyers signed up with Redfin to see homes or talk to our agents, a trend that continued unusually deep into the fall season, until just this last week. Early-stage demand over the past four weeks has been up 10%.

But everywhere except Southern California, Redfin closings were either flat or down, as the stand-off between buyers and sellers over price shows no signs of abating. Buyers look and look at homes, but only reluctantly make a move. Sellers unwilling to accept even-lower prices are now pulling some of the best properties off the market ’til spring. Negotiations are tough, and often unfruitful. One surprise from just last week: it’s practically November, and offers actually ticked up.

“It’s not enough right now for a listing price to be competitive,” said Redfin Bay Area market manager Catherine Jardine, one of my favorite comments from our local newsletters. “To get a sale, the price has to be compelling.”

Interest Rates Remain at Historic Lows: 4.21%

Interest rates meanwhile remain at freakish lows, and Monday’s speech by the Federal Reserve chairman suggested the government will try to keep ‘em low as long as it can. The latest numbers show a national average of 4.21% for the standard, 30-year fixed-rate mortgage, down from 4.37% a month ago.

This graph goes so low it weirds me out a little. But it has been weird so long that it doesn’t really seem weird anymore. That’s all the data for this month. Post a comment below and give us your take on the market. And thanks as always for your support.

Howdy Redfinnians!

Here’s our September round-up of real estate news…New data showed prices from last July increased .6% but that’s probably the year’s last increase; August sales volume recovered 7.6% from the mid-summer debacle but was still way, way low. Interest rates dropped again, to 4.37%, and could drop even further.

Because there are so few transactions, the numbers don’t mean much. Today’s market is like a sloop in fluky winds, where any puff of breeze swings boom and crew from one side to the other without really moving the boat. Foreclosure clouds are gathering again on the horizon, but we think we’ll avoid a second storm. The real estate market will likely swing with the tides of the larger economy.

Meanwhile, Redfin’s marketshare is spiking and our business is set to double again this year; we’re planning to launch several new markets as well as a few nifty website features later this month. Read on for details about the market, beginning with this morning’s numbers on July home prices…

Prices Settling, Likely Down

Case-Shiller data for July show that home prices increased nationwide by more than half a percent. Since each month’s index value is actually the result of a three-month moving average, the modest appreciation is probably the result of the federal tax credit that expired on June 30. Year-over-year growth was strongest in California, but these are the markets now losing steam, with low month-over-month appreciation:

Once the index no longer includes June prices, we expect to see prices decline, but only modestly. Prices have been stable the past two years because the threat of foreclosure has receded, and sellers no longer feel compelled to accept losses:

The Standoff: Sales Volume Very Low

The resulting stand-off between buyers and sellers has been easy on prices but hard on sales volume. Excluding new construction, sales increased 7.6% in August, but this was mostly because July sales had been so dreadful; year over year, sales volume declined 19%. According to Redfin’s own data, the only areas in the West where demand has remained strong through September are in Southern California.

New home sales, which are generally considered a better forward-looking indicator because the numbers are based on freshly signed contracts rather than closed deals, were flat nationwide in August, but increased 16.7% in the Northeast and 54.3% in the West. We think sales gains for existing homes won’t be as strong, since builders at the end of summer tend to discount more aggressively than other types of sellers.

Who Will Move First?

What will happen to prices next? Demand seems likely to remain low because of a stagnant economy but that can change quickly if consumers become more confident: we see an enormous number of buyers touring houses right now, but with no urgency to buy whatsoever. When interest rates rise, prices drop or inventory disappears, buyers may start rising to the bait, particularly since several normally bearish economists have argued in favor of buying a home during the downturn.

Meanwhile, inventory is nearly as low as demand: all month, we’ve seen sellers who can afford to wait pulling their listings ‘til spring. That inventory will need to be bought up at some point. Would-be sellers waiting in the wings will buffer any increase in demand before prices actually increase.

A Second Wave of Foreclosures

The wild card is foreclosures. We have never seen big price drops caused by any other factor. Since late last year, Redfin has been predicting that foreclosures would moderate in early summer 2010, allowing prices to stabilize. This is exactly what has happened. But it happened mostly because banks have gotten slower to foreclose, not because consumers could pay their mortgages.

A second wave of foreclosures may be coming next year. The first wave of foreclosures hit people who could never afford their mortgage and suddenly found themselves unable to flip the house or borrow more money. But when teaser rates on loans from 2006 and 2007 expire in 2011 and 2012, another wave of foreclosures could hit a new group of people: folks who can afford the teaser rate but not the new rate.

If employment recovers by then, or if sellers can accumulate enough equity in the loan’s first five years that they can re-finance, this won’t be a problem. We think banks will be able and willing to increase loan modifications to avert a disaster, but others disagree, and we thought you should know.

Interest Rates Keep Falling

Meanwhile, interest rates keep falling, and there’s no sign they’ll stop. Last week rates dropped to 4.37%, and the Federal Reserve has signaled it is willing to lower rates more on deflation fears:

What does all this mean? Well, the future is anybody’s guess. Every market is different, and every neighborhood is different. But our guess is that the national market isn’t going anywhere any time soon. It’s a moderate position so most folks are bound to disagree one way or another. We’re eager to read what you’re seeing in your market. Thanks as always for your support.

Best, Glenn

Glenn Kelman | Redfin
Twitter | Blog

(In the original version of the table, data for Chicago and Boston had somehow been swapped in a transcription error; thanks to Rich Lytle for correcting us. We apologize for the error.)

Howdy Redfinnians!

It’s time for the monthly round-up of everything that moved in the real estate market! The short story is that the real estate market is stagnant, mostly because home-buyers can’t get credit, and sellers can’t get enough money for their house to pay off the bank.

The Case-Shiller index published on Tuesday showed home prices increasing across the board in May 2010:

We particularly worry that California prices are over-heating: annual increases of 13% in San Diego and 20% in the Bay Area don’t seem sustainable.

But a lot has changed since May, which Case-Shiller hasn’t accounted for yet. Due to a hangover from the federal tax credit that required purchases to be in contract by April 30, sales volume for existing homes declined 5.1% in June, and we believe prices in most markets are now stagnant or declining.

New Home Sales Bounce 24%

We argued last month the hangover will last all year, but there has been some positive news: the number of new contracts signed by home-builders bounced from an apocalyptic low in May, to increase by 24% in June. Since new-construction contracts take months to close, this increase is an early indicator that demand isn’t in free-fall. That said, we’d feel even better about it if the Commerce Department didn’t have a habit of lowering each month’s estimate in a subsequent re-statement.

A Lull in Closings, But Early-Stage Demand at Redfin Stronger Than Ever

In our business, the number of customers signing offers is down 40% from one frenzied week during the tax-credit peak, but up 6% compared to the last four weeks. What’s surprising is that the number of folks touring properties is at historic highs — normally this late in the summer, early-stage activity begins to decline. The buyers we’re working with now are in no rush, so demand will take a while to recover.

Many of our more languid buyers complain that the quality of listings on the market just isn’t that great, mostly leftovers from whatever didn’t sell this spring. We’re certainly seeing sellers making more concessions at the inspection, so long as the buyer gets a contractor to provide a reliable estimate on repair costs. But we’re also putting more listings on the market than ever, also unusual this late in the season.

Foreclosures Continue to Decline: Have Banks Lost Their Nerve?

Another reason listing quality will improve is that foreclosures, while still high by any historical standard, have begun to decline, with a 3% drop in foreclosure filings from May to June. This data is also mixed, with increases in some states as others decline, and conflicting claims from different data providers about the nationwide trend. What we have noticed is that even when there is a foreclosure filing, banks aren’t always going through with it, instead encouraging troubled borrowers to sell their own home in a short sale. In Seattle for example, June foreclosure filings increased, but much faster than foreclosure auctions. We’ve also noticed anecdotally that the historically miniscule number of borrowers who worked out a payment plan with lenders has modestly increased.

It will take us years to work through the supply of foreclosed homes — and years for sellers who want to sell to see prices that will allow them to pay off their mortgage — this will slow a recovery, but long-term we think we’re beyond the hemorrhagic increases in distressed inventory that drove the big price drops in the market.

Buyers Can’t Get Credit

The problem now is fewer buyers. Unemployment is nearly 10%. And even though money is cheap, most people can’t get it. It will be years before folks who’ve gone through a foreclosure or short-sale will be able to borrow again, and lenders are punishing borrowers with a credit score below 740. Cash investors are responsible for more activity than usual, exploiting what is essentially a credit arbitrage opportunity in the low-end market, getting bargains because many of their would-be competitors don’t qualify for a loan.

Interest Rates Still Low

A lot of buyers will have to jump into the market before we see any major price increases. Many folks in the real estate industry believe that nobody will get off the dime until mortgage interest rates take their first nasty jump. Last week, rates reached historic lows of 4.56%:

And that’s a wrap on another newsletter. Leave a comment below and let us know what you think!

Best, Glenn

Glenn Kelman | CEO, Redfin
Twitter | Blog

Howdy Redfinnians!

Here’s the usual digest of everything that moved in the real estate market this month. New data came out Tuesday showing another drop in real estate prices, and to everyone’s surprise, mortgage rates just fell through the floor.

Here at Redfin, we won Seattle’s startup of the year and also best blog, but our business dipped in the first weeks of May after the federal tax credit expired. Other brokers later confirmed the same trend.

Though we had earlier predicted a summer where prices went side-ways or down, and definitely saw the beginnings of that this month, we’re now feeling a bit better about the market because interest rates are so low. Just this week, business has really picked up.

Prices Dropped Most Everywhere Except California

Now let’s dig into the data! As we expected, the Case-Shiller index of real estate prices published data about March home prices showing a decline across all of our markets except for Seattle, Boston and most of California.

The U.S. market has now lost seven years of appreciation, with homes selling for the same prices as in July 2003. The eye-popper here is that the Phoenix market has lost 52% of its value from the peak, and still builders are finding new aquifers and paving new developments. Crazy. Nation-wide, housing starts for single-family homes increased 10.2% in April, so many developers now believe prices have stabilized.

Gains Erased in Big Markets

Charting Case-Shiller index values over five years shows that that the index’s decline reversed itself last fall when the scheduled expiration of the original federal credit spurred new activity. Then last winter prices began losing ground, erasing the gain entirely in the New York, Chicago and Atlanta areas.

We still expect a tick up in April and May prices, at least in the low-end, because of the federal tax credit’s extended deadline; home-buyers were hurrying to get under contract on a home by April 30 so as to qualify for a $6,500 – $8,000 credit. We saw a huge spike in April offers, and that has mostly continued in California where a state tax credit is still in play. Just judging from the conforming loans that it backs, the federal government reports that low-end home prices actually increased slightly in March.

Sales Volume Rises in April, Plunges in May; Competition Eases

And sales volume was certainly through the roof in April. The National Association of Realtors reported on Monday that the number of existing homes that sold in April increased 7.6% since March, and 22.8% since April 2009. This won’t last. Mortgage applications plummeted 27% in May after the federal credit expired. Within its own business, Redfin has seen competition among home-buyers decrease. In January, 60% of the offers we tendered on a property faced competition whereas the number for May so far has declined to 49%:

Foreclosures: The Beginning of the End

Meanwhile RealtyTrac reported the first significant evidence of a plateau in foreclosures: the number of bank-owned properties coming to market increased by 45% over the past year, even as foreclosure filings decreased in April — by 9% over the prior month, and by 2% over the prior year. Translation: banks are getting rid of more foreclosure properties than they’re taking in. There are so many foreclosures that the supply of bank-listed properties isn’t likely to decline significantly any time soon, but for the first time it isn’t likely to increase either. This is exactly in line with our November forecast that bank-owned listings would peak in mid-2010. It’s the beginning of the end.

Mortgage Rates Plummet

But the big news is the drop in mortgage rates, a drop so large and unanticipated that the Wall Street Journal splashed it across the front page on Monday:

Many in the industry now say rates could drift as low as 4.5% this summer from 4.86% now, instead of rising to 6% as some economists projected, making for significantly lower payments for Americans buying homes or refinancing their mortgages.

As of May 20, the average rate for a 30-year mortgage was 4.84%. We’ve also seen rates on jumbo loans ease, which is important for the credit-starved high-end of the market. So why are rates going down after years of high government debt? The European bond market is so screwed up right now because of Greece that smart money is seeking a safe haven in U.S. mortgages. In the land of the blind, the one-eyed man is king. And as we’ve argued before, interest rates affect real estate prices more than most people realize.

We’re still worried that rates long-term will rise, that foreclosures will remain a major force in the market, that that there will be a big hangover in June or July numbers once the tax credit is truly over and done with. But after June’s tax-credit hangover, we can’t help but believe that rates this low will give summer home-buyers a real jolt.

Anyway, that’s our call. Let us know your thoughts by writing back or leave a comment for everyone to see here. Thanks as always for your support, and feel free to let us know how we can make Redfin better!

Best, Glenn

Howdy Redfinnians!

Here at last is the round up of everything that moved this month in the real estate market. At Redfin, our agents are racing to keep up with all the folks who want to work with us, and our engineers are going deep, to build software to guide customers through home-tour scheduling and the escrow process. We’re hiring as many brilliant people as we can find, and occasionally popping up on talk shows to pick fights and chronicle our growth.

Prices Drop

But enough about us. What’s happening in the market? The second dip has arrived! As we predicted in our last newsletter (“The Lull Before the Price Dip“) the Case Shiller update from Tuesday morning showed February home prices declining -0.9%, with the biggest drops coming in Chicago (-2.0%) and
Portland (-2.4%).

Because Standard & Poor’s has reported problems in how it accounts for winter-time lulls in demand, we are no longer using the seasonally adjusted numbers. Even if we had used the seasonally adjusted numbers, we would have seen a price dip — in fact, the first one in ten months for the 20-city index. Real-estate’s bubble bloggers are back in business!

Sales Up, But Demand Likely to Slacken

Even as prices dropped in February, sales volume increased in March, because of low prices, but also low mortgage rates and the end of government credit. According to the National Association of Realtors, the number of existing homes that sold this March increased 16.1% over last March, and rose 6.8% over February (even when adjusting for seasonality); in Phoenix and Las Vegas, sales hit a multi-year high.

New home sales were way up too, with an eye-popping jump of 27% in one month. Much of this was due to the federal home-buyer tax credit, which expires today; mortgages for home purchases reached a six-month high this past week. We still expect a big spike in May sales when the California state tax credit kicks in, and may see nationwide prices recover temporarily when the data for April comes out, but otherwise we aren’t too confident that the summer will be as strong as it usually is. If interest rates weren’t so low, we’d be more worried.

Others share our concern. Robert Shiller, the economist who predicted both the real estate and Internet bubbles, believes the housing market will be vulnerable as the government withdraws support for lenders and home-buyers alike. The key question is whether the past three weeks of employment gains can begin to take up where government support leaves off.

A leading indicator for slackening demand is the percentage of Redfin’s offers that involved a bidding war: for homes under $500,000, the number drifted down from a high of 60% in January to 51% in April. The entry-level market is still competitive, with 80% of Southern California offers under $500,000 facing competition, but slightly less so. The funny thing is that, across all our markets, competition is increasing for homes over $500,000. This is almost certainly due to the first big dip in jumbo loan rates that we’ve seen in more than a year.

Foreclosures: The End of the Beginning

Even if demand wears itself out, the supply of distressed homes may reach a limit. Yes, the number of foreclosure filings in the U.S. reached record levels in March, a largely seasonal increase we had already anticipated in our February newsletter.

But what is noteworthy about the foreclosure filings is that more are in the final stages of foreclosure, not the early stages, suggesting banks are starting to work through their backlog of distressed inventory.

So we are sticking by our forecast from November that foreclosures will peak in mid-2010; in California we have already seen a decline in foreclosure activity on entry-level homes, only partially offset by more foreclosures on homes above $500,000.

The Year of the Short Sale

The real change in the market has been in short sales, where a homeowner ducks foreclosure by selling the place and getting the bank to absorb any losses. After years of chaos, the banks are getting better about approving short sales in two or three months, which is why we think 2010 is the year of the short sale. For those concerned about prices, the predominance of short sales over foreclosures is good news; foreclosure can really trash a house, hurting property values across the whole block.

Interest Rates Immune to Global Credit Crisis

The other big bright spot is interest rates, which remain very low and have dropped slightly — to 5.06% for a 30-year mortgage — mostly because the U.S. government has promised to keep rates low for an “extended period.”

This is a big deal. As we’ve argued before, folks don’t pay enough attention to mortgage rates when thinking about the true cost of a home. We still expect rates to increase in the back half of the year, which would stifle demand. So that’s our take, though of course the truth is that anything can happen.

If you have any questions or comments, just write back or leave a public comment right here.

Best, Glenn

Update: we originally stated that buyers must close on a home by April 30 to take advantage of the Federal Home Buyer Tax Credit. Buyers must be under contract by April 30; however, the final date to close is June 30. We apologize for the error.

Howdy Redfinnians!

Here’s the roundup of the latest real estate data! As we predicted in last month’s newsletter, demand softened everywhere except Southern California. January prices increased, but this will probably be the last gain until the summer season begins in April and May.

To accommodate the spring-time increase in listings, Redfin launched an upgrade to our listing service that involves in-home consultations, personal service from one of our local agents, professional photography, data-driven pricing, and online tools for tracking traffic to a listing. We also expanded to Phoenix, our third new market in four months, and began hosting our customers on tours of short sales.

Our business is growing, but the market overall is slackening slightly: the percentage of listings with multiple offers declined from winter-time highs above 60%. Let’s dive into the numbers to get the gory details…

Pricing Data Mixed, Second Dip May Be Coming

The Case-Shiller data on January 2010 home prices that came out this morning showed a loss of momentum in price increases, and many analysts now expect a second dip in prices later this spring. Adjusting the numbers for the summer busy season and the winter lull, prices were basically flat, increasing 0.3% over December 2009, falling 0.7% compared to January last year.

Price increases were strongest in Southern California, with LA increasing a whopping 1.8% month over month, while Chicago and Seattle saw the biggest drops. Across the U.S., prices have dropped 29% since the May 2006 peak.

Other reports drawing on more recent data are more worrisome. Based on loans backed by the government, the Federal Housing Finance Agency reported a 0.6% price decline in January, though this may reflect a shift toward less expensive homes rather than a drop in prices for those homes. The data analysis firm First American reports that prices declined 0.7% in January 2010 compared to the year prior, an improvement over the 3.4% year-over-year decline from December 2008 to December 2009 but still a drop. Though we tend not to trust projections, First American predicts that prices will fall until April, then increase 4.5% over the coming year.

Sales Volume Drops Except in Southern California

Sales volume is also off. According to the National Association of Realtors, existing home sales slipped 0.6% from January to February, with inventory rising 9.5%. New home sales meanwhile fell 2.2% in February. In California, home sales increased 0.9%: the Bay Area weakened due to limited inventory and limited financing available for high-end homes but Southern California more than made up for it with massive sales volume at the low-end. With the average new mortgage payment down 60% from its June 2006 high, low interest rates and fairly low prices are still driving strong demand for homes under $500,000.

Competition Still Strong, Especially at the Low End

We can confirm this from our own experience. For Bay Area homes listed under $500,000, 95% of the offers Redfin made in March so far faced competing offers, the highest percentage ever; in Southern California this number was 80%. Across all our markets, for homes in all price ranges, 57% of our March offers faced competition; this past winter it was consistently above 60%. In Seattle, 44% of our March offers faced competition. We’ve handled nearly 500 offers so far in March, so the sample size is significant.

Federal Tax Credit Expires, California Credit Begins

We are likely to see a small surge in sales due to the expiration of the federal tax credit worth up to $8,000 for home-buyers who close on a property by June 30, though the last-minute rush will be much smaller than it was last fall, when the credit was originally slated to expire. California meanwhile approved a new $10,000 credit beginning May 1, which will apply to new and existing home sales. The credit officially expires at the end of the year but state officials expect government money to run out by June 30.

Demand Shifts from Foreclosures to Short Sales

At Redfin, we are seeing a shift in demand from homes being sold by a bank to short sales. In a short sale, the occupant is still the one selling the property, but he requires bank approval because the asking price is below the amount owed on the mortgage. One reason for the short-sale spike is that many banks, prompted by federal programs subsidizing short sales, have streamlined the approval process for a short sale; this has been especially true of Wells Fargo and Wachovia, who have dispatched asset managers to the field to pre-approve short sales when the property is first listed.

Slowing of Foreclosure Inventory May Stabilize Market

Another reason for buyers’ shift toward short sales is that there are simply fewer foreclosed homes to buy. Foreclosure-related filings decreased 2% in February from the month prior, mostly because government programs have made it more difficult for banks to foreclose delinquent mortgages. In Phoenix, foreclosure rates dropped 18%. In California, 44% of existing home sales in February involved a foreclosure, as compared to 59% a year ago. This is good news: with fewer foreclosures, prices can begin to stabilize. Though a short-term price dip is still likely, the drop in foreclosure rates is a good long-term trend.

Interest Rates Increase Slightly After Record Lows

After weeks of record lows, interest rates have begun to creep up, reaching an average of 4.99% last week for a 30-year fixed-rate loan. Rates may increase more after March 31, when the government is slated to stop purchasing mortgages from banks, but most analysts believe that if investors don’t pick up the slack, the government will likely just step in again.

Why do we worry so much about interest rates? Even though we aren’t sure whether home-prices will rise any time soon, we are almost certain interest rates will. Since most home-buyers borrow 80% of the money used to buy a home, rates contribute nearly as much to their costs as the home price.

And that’s the market: mostly stable now that foreclosure inventory is somewhat limited, still in a funk, with prices probably headed down a bit more even as interest rates likely start inching up; and unemployment remains a huge problem. As always, if you have questions, just write back — it’s really me sending this note, and I try to answer every question — or visit the online version of this newsletter on our blog. Thanks for your support, and have a great spring!

Best, Glenn

Howdy Redfinnians!

For the first time in years lots of pretty houses are coming onto the market, prices posted their seventh small monthly gain, but now demand has suddenly gone missing.

What happened? Let’s dive into the numbers… But first, the Redfin news: we launched our Portland business on Wednesday, and added the nifty ability on our website to x-out properties you don’t want to click on again.

Enough about us… onto the data… brace yourself. It’s a mess. Even Wall Street and market research analysts are befuddled.

Buyers Stay In Their Igloos…

The shocker was Wednesday’s Commerce Department announcement that January new-home sales fell 11%, though that was immediately contradicted by more optimistic reports from Wall Street analysts and from the home-builders themselves.

The other shoe fell when the Mortgage Bankers Association announced that last week’s number of loan applications for home purchases dropped to their lowest levels in 13 years. The bankers blame the East Coast blizzard for the one-week blip but most economists remain worried about unemployment. Even in California where prices have been rising, sales have been slow.

…But Redfin Demand Has Been Strong

Within Redfin, we don’t know what to make of this bad news. From December to January, visits to our site increased 34%. We set a record Tuesday for the number of homes we put under contract, which is very unusual for February. And it’s not just us: of the offers we submitted to listing agents in January, 54% faced competition, which almost always results in the winner having to pay above the asking price.

Prices Increase Nationwide for Seventh Straight Month

Meanwhile, prices held steady in December. The Case-Shiller data released Tuesday for December 2009 documented a seventh straight month of price increases nationwide, with the strongest gains in California and the Boston area, while the Chicago and New York areas declined.

For the year, prices dropped 3.1% nationwide, but actually increased nearly 5% in the Bay Area. The Seattle area was down nearly 8% for the year. As always, we present the seasonally adjusted data, which adjust for summer-time price increases and winter-time declines.

Foreclosures Decline, But This is Probably Seasonal

The real estate boogeyman — foreclosures — hid under the bed during the holiday season. In the fourth-quarter, delinquent loans declined 4%, as mortgage bankers predicted “the beginning of the end” of an unprecedented wave of foreclosures. January foreclosure filings declined 10% but RealtyTrac argued that this decline was largely seasonal. If the supply of foreclosures decreases, prices will be much more likely to increase. We still believe there are plenty of foreclosures ahead, albeit mostly in off-coast California, as well as Nevada, Arizona and Florida.

Rates Increase a Bit, But Still Pretty Low (And Likely to Stay That Way)

As we predicted in last month’s newsletter, mortgage rates increased slightly this past month, from 4.98% at the end of January to 5.05% this week:

You can see from the graph that rates are still very low by historical standards. And despite worries we’ve had in the past, they’ll likely stay that way for at least a few months, if not all year. As concerns have mounted over the solvency of Greece’s government, the U.S. has been firm about its intention to keep rates low.

The bottom line is that prices have been increasing and money is cheap — and will probably stay that way — but some of the fundamental trends are disturbing: foreclosures dropped but will likely increase again soon, and unemployment is taking its toll on demand.

What will happen next? Tune in next month to find out! As always, if you have any questions — or if there’s other data you’d like to see included in the newsletter — just write back and I’ll try to help as best I can.

Best, Glenn

Howdy Redfinnians!

Here’s the latest romp through all the major data on home prices released in the past month, starting with the November 2009 Case-Shiller numbers just out this morning. What the numbers suggest to us is that home prices will stay in the doldrums for a little while, except in the dangerously volatile California markets. Take a look at the data and decide for yourself…

Case-Shiller Data Show Strong California Growth, Weakness Elsewhere

The Case-Shiller report was mixed, with weakness in the Northeast and Midwest, but strong growth in California, especially the San Francisco Bay Area. Overall, the 20-city composite index showed a November 2009 gain of 0.2% over October. As always, we present the seasonally adjusted numbers, which even out summer-time price increases as well as winter-time declines:

Other price indexes presented conflicting data. Drawing on data from conforming loans, the federal government today reported a larger price gain, of 0.7% in November. Meanwhile First American CoreLogic, a firm that analyzes escrow records, claimed that November prices declined 0.2%. The market seems like a sailboat in fluky, light winds, yawning from one direction to the other. Below is a graph of the Case-Shiller data over the past five years:

Are We Headed for Another Big Dip?

Good question! An economist at the Center for Policy and Economic Research just argued that homes are still priced 10 – 20% higher than mid-1990 levels, and that demand will only slacken as retiring baby boomers downsize. We don’t disagree with that analysis, but it’s hard to square with Redfin’s immediate experience. After two months of declining traffic at year-end, Redfin.com traffic began taking big jumps in January, and we also saw a huge, unexpected spike in home-tour activity. Of the offers we presented to sellers in December, 56% were competitive; in Southern California this number was 73%, with competition most fierce for homes below $500,000.

Sales Activity Fluctuating, Buyers are Jittery

All that can change fast. In general, the markets have been jittery, especially since the big dip in home sales reported yesterday. As we predicted in our last newsletter, the number of existing homes that sold in December fell 17%, a widely expected drop due to fatigue from the expiration of the original tax credit deadline. In California, December home sales increased by the same amount that sales decreased nationwide, 17% — which just goes to show that California is in a different market than the rest of the U.S.

Foreclosures Spike Up Again

Regardless of what happens to demand, supply will likely soon increase. According to the National Association of Homebuilders, new housing starts are expected to surge 38% over last year. And foreclosure activity increased 14% in December after government intervention had led to three straight months of declining foreclosures. Both new constructions and bank re-possessions will put more properties on the market, limiting price increases.

Macroeconomic Drivers Mixed

With the market in this much flux, the main drivers for sustained growth will be improvements in employment and consumer confidence, and easy credit. After unemployment eased in November, it increased again in 43 states last December. Just to confuse matters, a few days later consumer confidence improved for the third straight month. So the larger economy is also up and down.

Rates Drop, But Likely Headed Up Again

Credit has eased, surprising most analysts. The average rate on a 30-year, fixed-rate mortgage dropped to 5.15% last week, the third straight week of declines after rates began climbing last month. Most experts think rates will rise or remain unchanged, but nobody thinks rates will fall.

That’s the major news in real estate; if you have local questions, just write back and we’ll do our best to hook you up with an answer. Hopefully you’re having a good new year.

Best, Glenn