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

Since the price drop-data is for November while mortgage rates declined in December, it may be that the market just needs time to respond. But one analyst called the price drop “breath-taking” and “god-awful.” The WSJ quoted an economist as saying that “the housing industry is in the process of reducing capacity to dangerously low levels.” A second economist said that, “outside of distressed properties, the [California] market is nonexistent almost.”

This made us wonder whether it’s really true, in California or elsewhere, that most of the homes for sale are foreclosures being liquidated by banks.

Since Redfin’s database includes virtually all the homes for sale (basically everything except what’s on Craigslist), including bank-owned listings as well as for-sale-by-owner (FSBO) listings, we can measure what percentage of homes for sale are bank-owned. And we can do this with unusual precision because we map all the data down to the level of a city, neighborhood or postal code.

Here’s what we found for nine of the largest cities we cover, sorted from the highest concentration of listings in foreclosure to the lowest, as of December 22, 2008. We measure the ratio of for-sale-by-owner listings as a percentage of the total homes for sale in each city, and then do the same for foreclosures.

And it’s true that in major California cities south of the Silicon Valley peninsula, about 1 in 4 homes for sale have been foreclosed, and others are being sold by sellers trying to avoid foreclosure (short sales). But the number of short sales may soon be decreasing, as banks are now soliciting short sellers to modify their loans at the new low rates so folks can keep their home.

I used to worry that the low rate of foreclosure in Seattle and San Francisco was a disaster waiting to happen. Prices will fall through the floor in those markets if the percentage of listings being sold by banks increases in either place to 20% or 25%.

But because the downturn in Seattle and San Francisco prices started a little late, and mortgage rates fell soon thereafter — unemployment, not increasing mortgage payments, will be the main driver for foreclosures here — maybe Seattle and San Francisco can avoid the huge pile-up of distressed inventory that is dragging down the market in Southern California.

What do you think? Why do Seattle and San Francisco have such low foreclosure rates? And will this continue?

(Photocredit: Ironside on Flickr)

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

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

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

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