A Wild Ride, Somewhere Near the Bottom of the Ocean (April Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive these newsletters by email, just sign up! Here’s the April Roundup:

Howdy Redfinnians!

All the April real estate numbers are out, so it’s time for our monthly round-up of everything that moves in U.S. real estate! First, our big Redfin news is that Agent Insights is a huge hit: in markets like Seattle, San Francisco and Washington DC, Redfin agents have published first-hand insights on 10 – 30% of the listings that debuted since the website feature launched, everything from “the 4th bedroom isn’t legal” to “significant water damage” to “spectacular view” to “on a bus line, but electric so very quiet.”

Very, very good stuff. Our data providers limit us to sharing data with registered users, so sign in and start searching! Hopefully, we can help you pick the homes to see before you get in your car.

Prices Down, Sales Up

Alright. Now. WHAT ABOUT REAL ESTATE PRICES? The data are mixed. February prices fell across every city in the U.S. except Detroit, almost re-visiting the pre-tax-credit April 2009 low:

The West has been much more volatile than most of the East:

I was surprised to see DC-area prices slip in February:

The Next Six Months Are Going to Be a Wild Ride

Prices nationally are at the level first reached in Q2 2003, wiping out almost a decade of appreciation. But the number of homes sold in March rose by 3.7%, whereas most economists expected only a 2.5% increase.

This is exactly in line with the forecast we published in the Wall Street Journal on February 10, where we wrote that “January and February numbers will be woeful. But…March will be better.”

What will happen next? After nine months of falling prices, the next six will probably be up and down. April and early May will soften again — March new-construction contracts were dreadful, and applications for home-purchase loans just ticked down — but the summer looks strong to us.

Redfin has been setting records over the past two weeks for accepted offers, with most of that business set to close in June. For the first time in a long time, you hear folks on Wall Street talk about “hefty gains for housing prices over the next 5 – 10 years.” Whether this is true or not, just hearing that kind of chatter raises one of my substantial, hairy eyebrows…

In A Falling Market, Bidding Wars

On the ground, a shortage of high-quality inventory still frustrates home-buyers. Rising rents are just starting to push first-timers back into the market, but they’re getting blown out by cash buyers, who now account for a record 35% of purchases.

Listing agents continue to under-price properties ahead of the falling market to create bidding wars: in many counties, we’re seeing a bizarre combo of month-over-month price drops and sale-to-list ratios above 100%. This tactic started with bank-owned listings, but now it’s often the way regular listings are priced too.

As we predicted over and over again, foreclosures began falling in 2010, a trend that continued in the first three months of 2011: by 15 percent from the previous three months, and by 27 percent from the same period last year. Some of this is temporary while banks sort through the robo-signing fiasco, but mostly banks have figured out that they lose less money negotiating with the owner than foreclosing on properties. Shrinking foreclosure inventory is one reason further wrenching drops seem unlikely to us.

Interest Rates at 4.8%, Affordability At 20-Year High

The x-factor is interest rates. Rates on 30-year mortgages rose to 4.9% through most of April, but fell back to 4.8% this week. Because the rest of the economy is recovering modestly while interest rates and prices have mostly stayed low, home affordability is at its highest level in 20 years or more, according to biased sources like the home-builders and the Realtors, but also according to slightly less biased sources, like Wells Fargo and Zillow too.

We know we sound like a Realtor — “record affordability!” — but baby it’s a fact. The long-term question — debated even by the great real estate economists Robert Shiller and Karl Case — is whether real estate will be like groceries, which account for a smaller and smaller percentage of our income over time, or if housing prices rise with income. If real estate is like groceries, affordability doesn’t matter much.

We won’t settle that issue here, but you can weigh in by leaving a comment below. As always thanks for your Redfin support!

Best, Glenn

When Wall Street and Main Street Disagree

It was the best of times, it was the worst of times, these last nine months. Since July, the stock market has increased 29%. Over almost the same period, housing prices have declined more than 5%.

At the end of last week, just before sales of new homes fell again, to more than 80% from their 2005 peak, and on the same day that a new poll showed the man-on-the-street’s economic pessimism hitting a two-year low, the Dow rallied for a 52-point gain.

Wall Street and Main Street have never been so far apart. What’s going on?

David Stockman, the Reagan Administration’s budget director, blames Wall Street speculation. He wrote yesterday that “casino capitalism on Wall Street” is almost unrelated to the “disemboweled, off-shored economy on Main Street.”

But speculation isn’t the only problem. The basis for the stock-market rally is improved corporate earnings, not an influx of speculative capital. Technology, financial services and oil & gas businesses are reporting huge profits.

But all of these sectors are noteworthy for their ability to grow without much hiring. And that’s what these businesses have done, profiting by selling more products yes, but profiting even more by doing that mostly without adding people, handing out raises or otherwise spending more money.

I don’t blame anyone for it, but the latest rally has in effect been a squeeze play. The result is a windfall for stockholders like me, but most of that money hasn’t reached home-buyers on Main Street.

This becomes obvious if you just listen to this Wall Street Journal story of a typical family on the Olympic Peninsula struggling to keep its home: a 14-year-old child dies, the father slips into mental illness, the mother gets cancer and loses her job.

These hardships happened years ago but didn’t take an immediate financial toll on this middle-class family; in 2006 the family augmented its meager income with a second mortgage on their home, which is only now about to foreclose.

It’s a perfect example of how Wall Street has recovered from its excess of borrowing, but Main Street hasn’t. Most people’s credit ratings will be thrashed for years after Goldman and Citi have returned to triple-A status; these folks won’t be buying houses any time soon.

So one reason that housing has declined for everyone except investors — whose activity in the housing market is at an all-time high — is that the would-be buyers of those houses are distressed, too. In most markets, including Atlanta, Seattle, Chicago, San Francisco and New York, price drops have been concentrated in the low- and middle-end.

There are other factors, including the limited liquidity of the housing market and the slow pace of price discovery, the absence of quality inventory as sellers wait for better days and buyers hold out for better deals, but the simplest explanation is that the housing market is down because the middle class is down.

The stock market is up because the upper class is up. Eventually, as we’ve argued before, the money will trickle down and the whole economy will buck up. Already housing is at its most affordable level since 1975. But even so, Main Street can’t always afford it.

Buyers and Sellers: Not Mating in the Wild (March Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive these newsletters by email, just sign up! Here’s the March Roundup:

Howdy Redfinnians!

Welcome to our big March synthesis of all the national real estate trends! The news is bad for home-owners, good for buyers: prices are down, sales are down further. The smart money is moving in, as a whopping third of all home-buyers are investors, but the typical consumer is still a bit scared.

Foreclosures are at a 36-month low, which will limit price drops for now, but other would-be home-sellers aren’t picking up the slack: in many core markets there are plenty of year-old listings, but nothing much shiny and new. Rates dropped again.

In our own business, we launched Agent Insights, where our own agents take notes on listings as we guide buyers through them, sharing these notes with our other customers on our website. To see what we think of a home before driving out to it yourself, just click on any starred listings:

In some areas, we see as many as one third of all homes in person…Now let’s dive into the numbers!

Prices Drop 1% in January

The Case-Shiller analysis of January home prices came out Tuesday, showing a 1% decline since December. Every market fell except Washington DC; the steepest monthly drop was in Minneapolis, then Seattle:

We expected a January decline, predicting last month that prices would fall to “dreadful” levels in January and February, but rise again in March and April, mostly because the stock market has been making people feel richer. Stocks have almost doubled since March 2009; housing prices in that time have increased only .6%.

The 2007 — 2008 decline was precipitous in the West, with a nice bounce in 2009 that has now disappeared:

In the East & Midwest, the decline was more gradual, and, except in Washington DC, the bounce less pronounced:

The Market Falters, But Isn’t Plunging into the Abyss

Since we predicted that prices would stop falling in March and April, Japan and the Middle East plunged into turmoil and consumer confidence faltered–though not as much as most analysts feared. We aren’t as sure of the market anymore. Prices may fall, though we don’t see any basis for a significant drop.

Bill McBride, who called the housing bubble in 2005 on his blog Calculated Risk, is also mixed. He wrote yesterday that nationwide price indexes won’t fall more than 2% – 7% from current levels because there are so many all-cash investors, especially at the low-end. All-cash sales are at record levels, especially in the most distressed markets.

Bill also notes that rents have been increasing, so that the ratio between rents and home prices is only 15% – 20% above where it was pre-bubble. This is a key metric, since the need for shelter is mostly constant. As rents increase and prices fall, more would-be renters become buyers, and more investors buy properties for rent income.

The Stand-Off Continues: Nobody Wants to Sell at These Prices

Our own business saw a 25% increase in March closings but April seems likely to be only slightly better than March. Usually at this time of year, we expect demand to jump from month to month through June.

Part of the problem is limited inventory, as the winter stand-off between buyers and sellers continues: home-owners are unwilling to list their homes at current prices, and buyers are tired of looking at last year’s listings. One reason we’ve been seeing lower prices is just because of low-end inventory, not low demand: the only homes to buy are pretty bad.

And banks, under government pressure after the robo-signing scandal, have forced less inventory onto the market: foreclosures declined 21% from November to January, hitting a 36-month low; foreclosures may bounce some but the government is pressuring banks to let more home-owners sell their properties prior to foreclosure.

Sales Fall 9.6%, And May Get Worse

Without blue-light foreclosure specials, buyers and sellers have been reluctant to mate on their own in the wild. The really scary number is the decline in February new-home sales, which is 16.9% below January levels. For previously owned homes, February sales volume actually fell a whopping 9.6%. Sales were 2.8% lower than last year, when there was a federal tax credit goosing activity.

The year-over-year decline was a lot better than we thought it would be, actually. And the numbers are going to get better, as pending sales increased 2.1%, when economists had been expecting a 1% decline. It will take time for the market to perform on its own, without banks driving down prices and the government driving up demand, but we think this will be the first year that happens since 2007.

Interest Rates Calm Down, a Bit

One reason for a big hole in the usual spring run-up in home sales has been interest rates. Rates spiked mid-February to 5% or higher, which gave home-buyers a big scare. Since then, rates have returned to an average of 4.81% for a 30-year mortgage, in part because investors flustered by Mideast turmoil and Japan fled to mortgage-backed securities:

Folks made fun of us last year when we said houses would get a bit cheaper while the money to buy a house would get much more expensive. Yet this is exactly what has happened.

And that’s our take on the U.S. housing market for March. It isn’t going to get better any time soon; prices might drop a bit more, and rates may rise. Thanks as always for your support, and please share any feedback with us in the comment section below.

Best, Glenn
Glenn Kelman | CEO, Redfin

The Double-Dip (Probably) Stops Dipping in March (Feb. Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive these newsletters by email, just sign up! Here’s the February Roundup:

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

Something Waits Beneath Winter (November Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive these newsletters by email, just sign up! Here’s the November Roundup:

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!

The Hangover’s Over. Reality Isn’t So Bad. (October Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive these newsletters by email, just sign up! Here’s the October Roundup:

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.

The Market Was Quiet & Prices Were Calm (September Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive a summary of these newsletters by email, just sign up! Here’s the September Roundup:

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.)

Keep Calm & Carry On! (August Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published on the 11th or 12th of each month, which analyzes our own databases to identify — well ahead of anyone else — the major trends in listing inventory and prices as well as sales activity and consumer traffic.  You can always see the full version of our newsletter right here on the blog, but if you’d like to receive a shorter update by email, just sign up!

Here’s your big August round-up on the real estate market! But first, a few morsels of Redfin news: we finally added school ratings and reviews throughout our website, and updated our iPhone app to find new listings as you zoom around the map.

June Prices Up, July Sales Volume Down

If you spend enough time searching Redfin you’ll notice the market is getting weak in the knees. The Case-Shiller numbers on June home prices came out this morning – prices are up 1.0% nationwide, and even more on the East Coast! — and nobody really cared.

Case-Shiller Data for Key Markets, Non-Seasonally Adjusted

June is ancient history. The last of the sales driven by the federal tax credit closed in June. And what we already know about July is that prices were mixed, and sales volume was dreadful. Excluding new construction, the number of homes sold in July plunged 27% compared to June.

Don’t Panic!

But let’s not over-react! Sales volume will recover slightly in August. And while prices will likely decline this fall, especially in overheated areas of California and places like Seattle where prices may still have more ground to give, there aren’t enough new foreclosures in most of the U.S. to drive the kind of big drops we saw in 2008.

July foreclosure data was mixed, with early-stage delinquencies up, and actual foreclosures down: overall, July foreclosure activity increased slightly since June, but declined nearly 10% since July 2009. Banks are getting more aggressive about avoiding foreclosure, through refinancing or pre-approved short sales. The buyers who are out in the market are mostly complaining of nothing good to buy.

Forward-looking indicators are saw-toothed, not down. After a big June bounce, new-construction sales declined 12.4% in July, only half as much as they had gained. Based on signed contracts rather than closed deals, new-construction numbers are usually 60 days ahead of existing-home sales, suggesting the road ahead is bumpy. That’s not good but it isn’t a sleigh ride to Hades.

Redfin’s Business Mixed

And our business has been mixed, with new customers increasing through early August, followed by three weeks of only modest declines; normally the end of August sees big drops in early-stage demand. We saw a few Chicago customers cancel tours last week after the big sales drop hit the papers, but not elsewhere. Mostly the business has been steady. Our August revenues will be 15% higher than July’s.

Interest Rates Still Very Low

Nobody is worried about interest rates increasing significantly any time soon. Rates continued to decline on deflation fears, to a new historic low of 4.36% for a 30-year fixed-rate mortgage.

Houses will get cheaper and money will stay cheap. Cash investors will continue to snap up many of the best deals. The rest of us will buy when we need to move or maybe just because a house is really pretty.

And that’s it! Hope you have a good September, and thanks for your support. Questions or concerns, please just leave a comment below!

Best, Glenn

Post-Hangover, the First Signs of Life (July Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published on the 11th or 12th of each month, which analyzes our own databases to identify — well ahead of anyone else — the major trends in listing inventory and prices as well as sales activity and consumer traffic.  To receive these newsletters by email, just sign up! We also post newsletters to our national and local blogs. Here is the July Roundup.

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

After the Tax Credit, Low Rates (May Newsletter)

Get the latest on what happened in the market this month.  If you’d like to receive our newsletter by email, just sign up! Local versions of the newsletter are available for the Seattle area and for the Bay Area.

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