Regards,
Glenn

Howdy Redfinnians!

The data’s in for October, so it’s time for our high-speed, comprehensive summary of real estate trends. And the news is very similar to last month: prices are up for the third straight month, competition is increasing and sales volume resumed its march upwards. On the other hand, foreclosure data is mixed but still scary while mortgage rates are beginning to rise.

And Redfin is doing well! We expect record revenues in October — normally our best month is July — and more profits. November also looks good, but after that we expect our holiday sales to be slow, as always: the number of new Redfin clients signing up to see homes has been declining all month.

To juice up our winter numbers, we’ve got a big new release of the website coming next Tuesday, probably our most important of the year, so come back next week to see what we have wrought. For now, let’s dive into the data.

Prices Increase for Third Straight Month

The Case-Shiller data came out this morning for August, and it shows sizable price increases across all the markets we serve except Seattle, which is still toodling along in the doldrums. Most markets have increased for three or even four months. The Shamu of month-over-month price increases was in the Bay Area, at 2.6%.

As usual, we present Case-Shiller’s seasonally adjusted numbers to correct for the summer gains and winter losses that happen every year. Here’s a graph of how prices have gone up and down, starting in January 2000 when Standard & Poor’s baselines the Case-Shiller index for all markets at 100:

Competing Offers on the Rise

In our own little world, Redfin has started tracking the percentage of offers we handle every month that compete with other offers. This data set acts as a leading indicator of whether prices will go up or down on properties that won’t close for another 45 days. When more than one buyer is bidding on a property it usually sells for more than the asking price; when there’s only one buyer, it usually sells for less than the asking price. Sixty-one percent of the offers we worked on in September ended up facing competition, up from 52% in August.

The Bay Area was the most competitive market, particularly for homes under $500,000, where 92% of the offers we handled in September faced competition from at least one other offer. In Southern California, the numbers are very similar. The size of the sample for each market averages around 75 offers.

But Research Firm Says Bottom is Still Five Months Off

It all looks pretty bullish, huh? Don’t get too excited! A research report published by First American CoreLogic — and touted by the Wall Street Journal — predicts that nationwide U.S. housing prices won’t bottom out until March 2010, based on the assumption that Congress won’t extend the $8,000 first-time home-buyer tax credit beyond the November 30 deadline. But now it seems that prospects for an extension of the federal credit are good. An additional credit for Californians is also being considered by that state’s Assembly.

The Number of Homes Sold in August Increases

And the volume of home sales continues to increase. After crying a river last month over the depressing effects of waning government subsidies, the National Association of Realtors now reports that existing U.S. homes sales in September increased 9.4% year over year, with inventory falling 7.5%. The strongest growth in sales volume was in the West at 13%, and the weakest was in the Northeast at 4.4%. In just one month, September sales volume in California increased 1.0%, with the median price increasing 0.8%. Meanwhile new housing starts increased nationwide in September just a bit, at 0.5%, but building permits fell 1.2%.

Foreclosure Data Mixed, But Still Scary

What has been preventing any type of serious price recovery has been the seemingly bottomless pit of foreclosures. And the problem may be getting worse. Nationwide, foreclosure filings increased 5% in July – September as compared to April – June. But the most recent data is a little better, showing a 4% decrease in September from the month prior. Bank re-possessions increased 21% in the third quarter as compared to the second. It seems like the banks are getting more aggressive about clearing their books of bad loans, either by re-negotiating the loans or foreclosing.

In California, mortgage default notices declined for the second straight quarter, by 10.3%. The median month that a California loan in default first originated has only moved forward one month, from June 2006 to July 2006 — the worst loans came in mid 2006 — so the pig is moving pretty slowly through the python. There’s still a lot of bad inventory out there, and it seems like traditional home-owners are scared to compete with the banks. Distressed homes accounted for 29% of September transactions.

Mortgage Rates Fairly Low, Probably Headed Up a Bit

But enough about prices. A bottoming of prices — whether temporary or long-term — only accounts for part of the increase in demand. The other big factor is interest rates. After drifting down for six weeks, interest rates ticked up last week, with the average for a 30-year fixed-rate loan reaching 5.34%, still lower than the 5.36% we reported last month. For folks who don’t plan on staying more than five years in a property, adjustable rate mortgages were very low (4.69% average rate); but watch out for those — we still worry you could get trapped in a loan when rates take off.

55% of Bankrate’s panel of mortgage experts think that rates will go up, mostly because the federal government is losing its appetite for the mortgage-backed securities that banks use to unload risk.

That’s it! Another month is in the books. Any questions, just drop me a line. We love to hear from you, and we’re always thankful for your support.

Happy Halloween!

Glenn

We’ll send out a full report on market conditions later today.

The index — we now have a formal definition of Case-Shiller in our glossay so we can stop explaining it every month — measures how the prices of houses have changed, focusing exclusively on houses that have been sold before without any major renovations, so the only real driver for a price increase or decrease is demand, rather than a new kitchen or a recently upgraded basement. The index publishes data only for an entire metropolitan area, which includes not only a city like Chicago, but also its farthest-flung suburbs.

The largest gain was in the San Francisco area at 3.1%. The most sustained gains were in DC- and Chicago-areas — where prices have increased over three consecutive months — and in the Boston area — where prices have increased for four consecutive months.

As usual, we have prepared a table summarizing the date at which each market peaked, the date when home prices were last at this level (”equivalent date”), the percentage drop from the peak, the year-over-year change, and the month-over-month change. We’ve also added a new column to track the number of consecutive months that prices have increased in a market.

In general, prices are at June 2003 levels, down year-over-year but up .7% month over month.

And here are the graphs, first for the index since 2000 so you can see the whole bubble form and then pop…

And now we see the same data for just the last 12 months, so we can see how prices are bottoming out, at least for the moment.

We still don’t know what will happen to prices once the first-time home-buyer tax credit runs out in November, or even if it will run out since the industry is lobbying Congress for an extension. What do you think will happen? As always, we anxiously await our readers’ comments…

We’ll integrate all of this data into a larger portrait of the market, hopefully later today in the big Redfin newsletter.

By popular demand, we’re now publishing the newsletter on our blog; if you want to get it hot off the presses, register for a new Redfin account, or update an existing account to ask for the updates.

And yeah, I know, the newsletter is way too long. And it doesn’t include any marketing messages or calls to action; partly we don’t have the brains to do this, and partly we don’t have the stomach.

Regards, Glenn

Howdy Redfinnians!

Spread the word: Redfin’s profitable! And then hold that thought! Because we have to talk about the topsy-turvy, what-da-heck-is-going-on real estate market first…

Prices Are Up for the Month, Sort Of, But Down Over Last Year
Case Shiller, the index that economists use as the most reliable measure of home prices, reports this morning that May home prices increased .45% over April; this is the first increase since July 2006. Once we adjust for seasonality – home prices tend to increase in the summer – the gain becomes a loss nationwide of .2% . But even after this adjustment, the Bay Area (+.7%), DC (+.7%), Chicago (+.5%) and Boston (+.3%) still gained month-over-month. Year-over-year, prices are down 17%.

The table below shows the month when each market peaked, the size of the drop from the market’s peak, the change since May 2008, and the change since April 2009. We also show the month in the past when prices were last at this level (“equivalent month”):

What about the number of sales? Sales of new single-family homes increased 11% in June over May; the strongest increases were again in California and DC; existing home sales were also up month over month, but flat year over year.

The Top-End of the Market Softens
Generally, demand for entry-level homes has been strong this season — the Federal Housing Finance Authority, which calculates price changes based on the conforming loans favored by entry-level buyers, just reported a .9% price increase from April to May, seasonally adjusted. But the top end is starting to move. With jumbo loans scarce, the prices of the big mansions have finally started to drop everywhere except the Bay Area — Redfin has recently seen a sharp increase in million-dollar transactions, especially in Seattle. This change in the mix of home-buyers is one reason median prices jumped by as much as 6.4% in places like Southern California in June — people started buying nicer houses, not just paying more for the same house.

Inventory Declines to 9.4 Months
Inventory has generally decreased, drastically in West Coast markets, where our agents often describe buyers as frantic. In California, we’ve taken clients on tours in late June where a dozen people are lined up to get into the property; sometimes we take three clients through the same houses on the same day. 84% of our Bay Area offers in June involved a bidding war. Nationally, the supply of existing homes for sale fell to 9.4 months; a sellers’ market usually has six months of supply or less. In LA, the number of homes for sale fell by a whopping 54% from May to June.

And the whole market is seeing an increasing percentage of home purchases by investors; in part this reflects sellers’ preference for cash buyers in the wake of new appraisal rules that have gummed up loans but it also may represent the return of smart money.

But More Inventory is Coming: 9% Increase in Foreclosure Filings
More inventory is on the way via foreclosures. Nationally, foreclosure filings increased 9% in the first half of 2009 over the previous six months, and nearly 15% over the same period last year. While California mortgage defaults decreased for the first time in a year, many banks are staffing up for more foreclosures by September. What this means is that prices won’t rise with demand: the real estate market is like a grocery-store cereal aisle, where every time someone buys a new box of cereal, the banks put another on the shelf.

There’s also a significant backlog of individual home-owners who want to sell, but know they can’t compete against foreclosures. Here at Redfin, we think prices won’t significantly increase for at least 18 months due to this inventory backlog and continued unemployment; then again, price drops now seem pretty unlikely in most markets.

Mortgage Rates Creeping Up, But Still Very Low
What’s spurring buyers these days are mortgage rates. Rates dropped slightly over the past month, and have over the past year been at historical lows — but they did tick up slightly this week. The national average on a 30-year fixed-rate loan is now at 5.44%. Bankrate’s panel of experts guesses that rates will continue trending up over the next 30 – 45 days. If rates increase a full point to mid-2008 levels, the cost to a home-buyer would be roughly equivalent to a 10% increase in home prices.

Redfin Is Profitable
Meanwhile, life at Redfin is very busy and just super fun too. We notched our first profit this past June, and expect to make more money all summer. When representing home-buyers, our agents are the top-two producers in the Boston area, the top-two in DC, the top-four in Seattle; we’re also at the top of the list in Chicago. And even though we’ve been busy, our customer satisfaction remains at 97%; the company is speaking at next week’s big Inman conference on measuring customer satisfaction and using it as the basis for agent pay.

Our big summer party – the Naked Truth — turned into a mob scene, with 500 people joining a panel of bigshot CEOs, editors and VCs to discuss different ways consumer websites can make money. And we launched a new version of Redfin with better neighborhood stats and free text-search for listings’ marketing remarks – check out Seattle lofts or historic buildings in Washington DC or Chicago homes with a pool. Up next are some super secret Internet gizmos that we’ve been working on for months.

Alrighty, that’s a wrap on another monster newsletter! Any questions? Just write me back; I almost always answer. And thank you, thank you, thank you for all your emails and tweets of support. We live for fanmail.

The data substantiate what I had noticed this weekend just browsing listings in the Berkeley Hills, where an old listing alert showed homes now struggling to sell for a price they had commanded in 2002 or 2003:

The Case-Shiller data is considered more reliable than data from the National Association of Realtors because it excludes the distorting effects of remodeling and new construction, considering only sales on properties that sold before in essentially the same condition.

The price declines have been steepest in already-hard-hit San Diego, LA, San Francisco and DC, while Boston barely declined at all. While Case-Shiller has a nearly two-month measurement lag, our sense is that the trend continued in September and October, with inventory already on the market slashing prices.

Who knows where the bottom is, but especially in Southern California, DC and Seattle, we are seeing value-shoppers crawling out of their bunkers and snorfling around at the inventory. As noted by James Surowiecki at the New Yorker, the National Association of Realtors estimated that existing home sales jumped 5.5% in September, and now the Census Bureau reports that new home sales increased 2.7% in September.