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Howdy Seattle Redfinnians!
New data came out Tuesday showing a slight increase in Seattle-area real estate prices, and to everyone’s surprise, mortgage rates just fell through the floor. Before we dive into Redfin’s summary of everything that moved in the Seattle market, let’s hit the marketing fluff: yes, yes Redfin won Seattle’s startup of the year and also best blog; in the first three months of 2010, our agents were the top-six producers in King & Snohomish counties.
But our business dipped in the first weeks of May after the federal tax credit expired. Other brokers later confirmed the same trend. As late as last week we thought this summer wouldn’t be so hot for real estate sales, but rates dropped so low that now we’re a bit more optimistic. To gear up for the summer, we’re hosting a slightly nerdy, data-driven home-buying class on Tuesday, June 8 here in our Seattle office.
Seattle Prices Flatten Out…
So now let’s dig into the data! An update to the Case-Shiller index came out yesterday showing that Seattle-area prices ticked up slightly:
- Month over month: prices increased by 0.1%
- Year over year: prices declined 3.6%
- From the July 2007 peak: prices have dropped 25.3%
- Prices were last at this level in March 2005
Charting Case-Shiller index values over five years shows that last year’s price stabilization coincided with the original deadline for the federal tax credit.
The Seattle Bubble blog charts the local Case-Shiller data in elaborate detail. But our favorite Seattle Bubble chart is the one comparing what someone with a median income in Seattle can afford vs. actual home prices:
Notice how the two lines don’t quite meet? Redfin Team Lead Agent Cheryl McLaine, who works with a lot of folks in the area surrounding the Microsoft campus, noticed the affordability gap is making it hard to bring two sides of a deal together. Now especially after the tax credit expired, buyers have become more aggressive about low offers.
“We’re seeing extremely low offers,” Cheryl said. “16 of the 31 offers my team worked on last week were 8% or more below the asking price; only one was successful, seven failed and eight are still in play. Now that the credit has gone away, folks aren’t pre-approved for as much as they were a month ago, but they’re still hoping to make a deal work. Meanwhile, most sellers are holding out for their asking price, usually because anything less would put them underwater on their loan. A lot of sellers are just deciding not to sell at all until prices get better, so there isn’t much inventory out there. The market is at a bit of a stand-off.”
Redfin Ballard Agent Robin McCue agreed, noticing that the last six months of market declines have made sellers more realistic about pricing their property. “But having set a low price,” Robin said, “most sellers aren’t as willing to negotiate.”
Sales Volume Rises in April, Plunges in May; Competition Eases
We expect the tax credit’s April 30 deadline to cause an increase in sales volume through May, followed by a brief hangover. Already in April, King County closed sales increased 2.9%. Nationwide, 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.
But this won’t last. Mortgage applications for new home purchases plummeted 27% in May, once the federal credit expired. Within its own business, Redfin has seen competition among home-buyers decrease. In March, 44% of the Seattle-area offers we tendered on a property faced competition whereas the number for May so far has declined to 30%:
Interestingly, competition was more intense for homes above $500,000 (33%) than for those below (28%), a trend we attribute to easing credit for jumbo borrowers — and the fact that high-end home-buyers weren’t much affected by the expiring tax credit anyway.
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. Yes, 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 in years 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. In the Seattle area, foreclosures remain highest in Snohomish and Pierce counties, and in North Bend, Fall City and Auburn.
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 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. Janelle Saylor, a coordinator on Redfin’s Bellevue-Renton team, noted that a lot of the buyers working with Redfin are just getting into the market. “People are scheduling three tours all in one weekend, and they’re seeing five or six homes on each tour. It’s like the first episode of the Bachelor, not the finale where he makes the final cut.”
We’re still worried that rates long-term will rise, that foreclosures will remain a major force in the market, that price indexes will jump when tax-credit induced sales close in May, but then the hangover will cause a big burp. A little further out, 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 — all your responses go directly to me, and plenty of other folks at Redfin read what you have to say, too. Thanks very much for your support, and always let us know how we can make Redfin better for you!
Glenn Kelman | CEO, Redfin