The First Dip as Tragedy, The Second as Farce (May 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 May Roundup:

Howdy Redfinnians!

Time for the latest round-up on real estate prices! But first, we want all of you to drop everything and upload your gorgeous photo to your new Redfin profile, so we can welcome you back to our site in style.

We Were Wrong

Now to the numbers! Let’s get this out of the way right off the bat: we were wrong. In February, we wrote that we expected prices to start bucking up in March and April. The March Case-Shiller numbers out Tuesday showed a .8% drop nationwide. But then we were right: a day later the numbers used by the Federal Reserve came out for April showing a .7% increase. Crazy, right? As we wrote last month, after nine months of falling prices, the next six will probably be up and down.

Few Buyers, But Few Sellers Too

It’s a bumpy ride because supply and demand are racing to the bottom. Our website added a million users in the first three months of 2011, then went flat, as buyers began to pull back. But new listings are falling too: bank-owned listings declined 6% this spring, and the regular stuff declined by 14%. Would you sell right now if you didn’t have to? If a pretty house does hit the market in one of the big cities, there’s usually a bidding war.

And when sellers won’t sell and buyers can’t buy, summer sales volume goes down the drain. From March to April, closed transactions declined .8%, and pending sales fell 11.6%. That’s the bad economic news. The good news is that even if prices are up and down, they aren’t going to drop another 9% from May – December, as some have claimed. We think the second dip isn’t going to be like the first one.

And No, We’re Not Lying Scuzballs

But before making our case, let’s remind everyone we’re not lying scuzballs.

When prices were still rising, Redfin went on national TV last June to say that the market would become like a fat man who couldn’t get up. In September, we emailed all of our customers in Seattle to say prices would decline another 10%. Many of our customers changed their minds about buying a home back then; it cost us a lot of money but we’re glad they did. So as John Kerry would say, we were for the double dip before we were against it.

How Do We Get Off the Bandwagon?

Now that the band-wagon is rolling downhill fast, we want off of it. The New York Times front page published a glum report on the Case-Shiller index likening the slump to the Great Depression, the day before the numbers came out. A day later, same newspaper, same reporter, but the headline was now: Bottom May Be Near For Housing Slide.

If you’re getting that here-we-go-again feeling, maybe it’s because you’ve just forgotten how sickening that feeling once was. In the West, check out how steep the drop was from 2007 – 2009:

Now focus on the last two years:

It’s the same story in the East and Midwest. The first dip was a doozy:

The second, not so much, at least not yet:

Now past performance doesn’t predict future results but does this look like the middle of a roller-coaster ride, or the end? Bubbles last longer than you’d think, and so do declines, because of the market’s emotions, what Robert Shiller calls “animal spirits.” So figuring out when greed trumps fear is never an exact science.

The Banks: Bleeding Out Inventory, Not Gushing

However much the market wallows in its misery, the truly catastrophic drops were driven the first time around by banks determined to liquidate assets at any price. There’s still plenty of shadow inventory, but new foreclosures hit a 40-month low.

Why? Foreclosures are now taking an average of 400 days to complete, compared to 151 in 2007, mostly because of loan-modification regulations, not the robo-signing scandal. You could build a house, using crude stone tools, in the time it takes a bank to repo one. So most banks are shifting toward short sales, which hold their value a lot better than a foreclosure.

Sure the whole economy is getting scary again and the stock market run ended a month ago; all heck could break loose in employment, government credit and consumer confidence. But when there are reluctant sellers, bidding wars, declining distressed inventory — and mortgage rates just now dropping to 4.55% — we just don’t see what else could drive a steep drop in prices.

Feel free to disagree. We’ve been wrong before and you’ve been right. Just leave a comment below and give us your take.

Have a good June and thanks for your Redfin support!

Best, Glenn

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

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

DeeJayOh Argues that the Problem is Still Inventory, not Demand

Every month, Redfin publishes a newsletter about real estate prices out to a few hundred thousand people. A few hundred write back. The tone of the responses depends on the tone of the original newsletter. If we argue that the market will improve over the next year, as we did in Southern California at the end of 2008, we are crucified, even though we turned out to be right. If we argue that the market will decline, as we did yesterday, we are praised, even though we may turn out to be wrong.

I try to answer every email. It usually takes a few hours. One or two have complaints about our service, which I try to resolve. Some have questions about very specific areas like northwest Washington DC or a neighborhood in San Diego, which I can’t answer without the help of one of our agents. Whenever we mention interest rates, I get political rants, often about immigrants too (I am the grandson of immigrants who were very lucky to be allowed in, so I never know what to say).

And we always get parents trying to help their children, usually by complaining about the decisions made by a son-in-law, as in: “My son-in-law sold my daughter’s NYC apartment to buy Phoenix houses at the peak. What should I do?” For some reason, I enjoy answering those the most.

Almost every month, someone offers better insight on the market than the original newsletter. For example, when we argued yesterday that demand was weakening even as distressed inventory declined, Dennis Oldroyd, aka deejayoh at Seattle Bubble, wrote back to argue that the inventory was also limiting demand. It was such a good argument that I asked Dennis if we could publish his comments, and he graciously granted our request. Here’s Dennis’s email:

Hey Glenn –  Enjoyed the newsletter today. One quick thought for you on demand. I think too much is being made of the drop in new home sales as being indicative of a major drop in demand.

The issue with new homes is not demand, it is supply. See the attached chart from Calculated Risk – the ratio of sales to starts is very high. Housing starts are at a ~40 year low — so given that it looks like the market is clearing everything that is being built, I am not sure how the market could service any more demand.

Overall demand may have slowed – but that doesn’t appear to be the core issue driving down new home sales.

Also, if you look at the ratio of sales to starts going back for the last couple years, it is clear that the market has been drawing down inventory of unsold houses over time. What I have read in other places is that the inventory of unsold homes is quite low. Given you have the bully pulpit of the blog, I thought I’d share my viewpoint.

Thanks Dennis! I agree that stale inventory or limited inventory is part of the problem, but still think demand is weak too.