Redfin October Newsletter: 61% of September Offers Competitive

We sent our monthly market update out to 126,104 folks this afternoon, a 6% increase from last month. If you’d like to get the newsletter by email, just sign up.

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

September Newsletter: Prices Up, Sales Down

We were up at the crack of dawn this morning writing our September newsletter with the latest Case-Shiller data hot off the presses. It went out to 118,717 folks, an 8.5% increase from last month. If you don’t get the newsletter, sign up or update your Redfin account to get it.

We also post it here to the blog so even more folks can read it.  Please leave a comment to let us know what you’d like to see next month.  For comparison, our August newsletter is here.  Enjoy!

Howdy Redfinnians,

All the real estate data is in for September, and the Redfin newsletter is here to put it all together!

The short story is that prices are up, rates are down and even foreclosures notices are, for the moment, slightly down; sales volume took its first dip in four months, though that may be due to August vacations and limited inventory in markets like California. The big questions are whether there will be a big drop when the first-time home-buyer credit expires and the banks clear out their 2009 books by foreclosing on a bunch of delinquent home-owners.

So there’s reason to worry prices could go down or up, but the leading indicators within Redfin are way up: demand has been up 10% in September over August, and our new iPhone app has been a big hit in the field, representing 10% of our overall traffic on weekends when home-buyers are out touring homes in force. Since our break-even month in June, we’ve kept the profits coming; our buyers’ agents are still the top producers in almost every market we serve, and we’re still hiring as many superstars as we can find.

Sleepless in Seattle (But Everywhere Else is Fine)

But enough fist-pumping. Let’s dig into the market data! Case Shiller, the index that economists use as the most reliable measure of home prices, reports this morning that July home prices increased 1.2% from June, and decreased 13.4% from July 2008. The biggest gains came in San Francisco, Chicago and San Diego. Most markets have been gaining for three or four months. Besides Las Vegas, Seattle was the only market to have declined month over month, by 0.3%.

As usual, we present the seasonally adjusted numbers to correct for the summer gains and winter losses that happen every year.

The Pit of Despair: Foreclosures Keep Coming

What’s tugging at the bottom of the housing market is the supply of foreclosed homes. New foreclosure filings decreased only 1% from July’s record highs. And without more employment, the supply of foreclosed homes is likely to increase again by year-end.

A ground-breaking article in The Wall Street Journal estimates that at least 2.7 million homes with delinquent loans have not yet been foreclosed. Of the mortgages overdue by 12+ months in July, 17% were still not in foreclosure, compared to 8% a year earlier. That may soon change: at least one big bank expects to complete the foreclosure process on many of these homes by year end; the banks are probably trying to clear their balance sheets before 2010. Already, 31% of existing home sales in August were foreclosure-related.

Sales Volume Slips a Bit

From July to August, the number of existing-home sales dropped 2.7%, though the August sales volume was still 3.4% higher than the previous year. Meanwhile after four months of solid gains, increases in sales activity on new homes slowed in August to 0.7% over the previous month.

Ov-er-rat-ed: The First-Time Home-Buyer Credit

Both the Realtors and the home-builder lobbies blame the August slowdown on the November 30 expiration of the $8,000 first-time home-buyer tax credit, but there was still plenty of time for August home-buyers to close before Thanksgiving, and the proportion of first-time home-buyers to veterans was unchanged nationwide from month to month. In our own business, we’ve seen only a modest increase in the proportion of our buyers who first-timers, from 55% historically to 61% in September.

Because Congress is becoming more skittish about spending, we are less certain than others the credit will be extended, and believe in any event that enough people are rushing to beat the deadline that there will be a lull in December. But the slight slackening in demand right now seems to have come too early to blame on the credit; it seems to have more to do with the fact that much of the good inventory has been bought up this season.

A Feeding Frenzy in Northern and Southern California

California is where supply and demand are most out of whack. August sales volume across California declined 12% since July but increased year over year for the 14^th straight month. Affordability is driving the demand: the average mortgage payment for new California home-buyers in August was 58% below what it was in the June 2006 peak, which reflects both the decline in home prices and mortgage rates.

In the Bay Area, sales volume softened in August compared to July, but we think this is an inventory problem more than a demand problem: there was a 15% month-over-month decline in the number of foreclosed bargains selling in the market, leading to buyer frustration with “multiple offers and all-cash deals” on the limited foreclosure inventory; San Francisco inventory levels are down 11.3% compared to last year. At Redfin, we are operating at very low or negative margins in California because so many of our buyers are getting outbid.

What’s Really Driving Demand: Mortgage Rates

In our view, the main drivers for the summer surge have been the stabilization of home prices and, more importantly, the decline in interest rates. Bankrate reports the average rate on a 30-year fixed-rate loan slipped over the past week from 5.38% to 5.36%, approaching the historic lows we saw earlier this year. Experts mostly agree that rates are likely to remain low over the next month, though long-term most economists believe rates will increase because of heavy counter-cyclical government spending.

WHEW!  That’s it. Any quibbles, just write back. Our goal is to be comprehensive, to earn your trust, to get it right.

Best, Glenn

August Newsletter: Prices Tick up, Redfin in Time’s Top 50 Websites

On the last Tuesday of every month, just before the Case-Shiller data is released at 6 a.m., we start writing Redfin’s customer newsletter. Which has become a bit of a production. It used to be about what’s happening at Redfin — and sometimes it still is — but most of our time now is spent covering changes in the market.

The newsletter goes it out to a 108,157 people, about a third of whom open it. And then we post it here on this blog, so still more people can read it. 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 newsletter.

And if you have ideas on what you’d like to see in the next newsletter — or beefs with what we said, just leave a comment below… for reference, the July newsletter is available here.

Regards, Glenn

Howdy Redfinnians!

The real estate data for July just hit the presses, and Redfin is here to combine it all into one comprehensive portrait of what’s going on in the market. The short story is that prices are up a little, sales are up a lot, interest rates are down for the moment but foreclosures are also increasing & nobody knows for sure if Congress will extend the first-time home-buyer credit. The market seems unlikely to get much better or worse any time soon. Let’s dive into the detail so you can sort it out for yourself.

Prices Increase Nationwide for the First Time in Three Years
The Case-Shiller index for July 2009 came out this morning and it shows the first month-over-month price increase across the 20-city composite since May 2006 – even when adjusting for the flurry of summer demand. The 20-city composite gained .7% over June 2009, but dropped 15.5% since July 2008. Every market Redfin serves improved except for Seattle.

Prices jumped most sharply in the Bay Area (+3.1%), but the rally has been the most sustained in Chicago, Boston and Washington DC, where prices have been increasing for three or four months. Across the country, prices are now at June 2003 levels.

Surveying the trend over the past year, we see that prices declines began moderating in March.

Led by the Northeast and the Midwest, Sales Activity Increases
Sales activity has also increased. According to the National Association of Realtors, the number of existing homes that sold increased nationwide 7.2% in July over June, the fourth consecutive month of increasing sales volume.
NAR reports this increase was almost entirely driven by sales in the Midwest and Northeast but California has also been exceptionally strong. California’s July sales increased 2.1% over June and prices increased 1.6%. In both the Bay Area and Southern California, high-end demand increased sharply, with July Southern California sales volume reaching its highest level in three years. Single-family housing starts were up 1.7% in July.

So Is This the Bottom?
All this data has led some folks to hope we’ve hit bottom. The way we think about that question is in terms of supply and demand:

• Supply is largely controlled these days by how long it takes banks to put all the foreclosed homes on the market — and they still have tons of backlog.
• Demand hinges on whether Congress extends the first-time home-buyer tax credit, set to expire on November 30, and how long interest rates can remain so low; most believe Congress will extend the tax credit.

But the Supply of Foreclosures Keeps Increasing
Let’s take a closer look at what is happening to foreclosure inventory. Foreclosure filings increased 7% in July 2009 over the same period last year, reaching record-setting levels for the third time in the last five months. The good news is that fewer home-owners are getting behind on their mortgage payments, but the bad news is that those who do fall behind are giving up more quickly than ever. Hopefully that means we’ll get through the worst of the foreclosures in the next few months unless unemployment stays high, but it will still take at least a year to sell all the foreclosed inventory off.

Interest Rates Dropping But May Increase Long-Term
That means the cost of a house is unlikely to rise substantially in the next year, but we tend to think that the cost of the money to buy it probably will: a 1% increase in mortgage rates is equivalent to a 10% increase in the cost of a home. Taking together the cost of real estate and the cost of a mortgage, Wells Fargo & the National Association of Homebuilders estimate that housing affordability is nearly the best it has been in 18 years.

So the key question is whether rates will increase much any time soon?

Mortgage rates dropped over the past three weeks to 5.52 percent for a 30-year fixed-rate loan, the lowest level since Memorial Day. Setting aside discount and origination points, the average rate has been 5.16%, very low if not quite record-setting. Most experts think rates will remain flat or fall over the next 45 days as money shifts from the stock market to interest-bearing bonds, but the long-term outlook is for higher rates because of concerns over government debt and inflation.

Redfin One of Time’s Top 50!
So that’s what’s happening in the real estate market. What about at Redfin? Well just yesterday, Time Magazine recognized Redfin as one of the top 50 sites on the Web. A few weeks ago, we made waves at the industry’s big conference in a keynote challenging the old brands to focus on service rather than sales.

And Redfin continues to employ top producers in almost every one of our markets. For example, the top-three buyers’ agents in Boston, the top-three in Seattle and two of the top ten in the DC area — are all Redfin agents. Our customer satisfaction has remained at 97% for our home-buying clients, regardless of whether the deal closes, and the company was profitable again in July. And — one more thing! — we’re hiring agents in almost every market, so please send any customer-service fanatics our way.

Alrighty, that’s it! Any questions, just write back; I almost always answer. And thank you for all your support.

Regards,
Glenn

Redfin’s July Newsletter…

Redfin sends out a monthly newsletter that digests all the real estate news from 20 – 30 sources into one portrait of what’s going on in real estate. All the folks who register on our site have the option to get the newsletter, and of course anyone can unsubscribe.

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.