Case-Shiller: DC Home Price Drops Continue Unabated

Time for a monthly check-in of the S&P/Case-Shiller Home Price Indices (HPI).

For an explanation of how the Case-Shiller data is calculated, check out their methodology pdf. Also remember that the data released on the last Tuesday of a given month is for the period two months prior (i.e. – October data is released in December).

Here are the basic Case-Shiller stats for the DC area* as of October:

October 2008
Month to Month: Down 2.6%
Year to Year: Down 18.7%
Change from Peak: Down 26.3%

The following chart shows the DC HPI scaled such that the May 2006 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the DC HPI was at or lower than it was in the latest data (May 2004).

Home prices in DC marked another steep decline in the month of October, bringing prices back to levels last seen nearly two and a half years ago. As fast as prices are falling right now, it doesn’t look like they’ll be bottoming out here any time soon.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare DC’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

Price declines in DC have been fairly dramatic, surpassed only by the southern California cities (out of the Redfin markets). They also continue to track fairly close to the 20-city composite, and for the second month in a row they fell close to San Diego’s level of six months ago.

The bottom is clearly not here yet for home prices in DC. If you are a seller that took your home off the market for the winter hoping for a rebound in spring, the current trends point toward disappointment. Of course, for buyers continued price drops means continually better deals to be found.

*[Case-Shiller defines Washington DC as the entire Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area, which includes all of the District of Columbia and all or part of the following counties: Calvert MD, Charles MD, Frederick MD, Montgomery MD, Prince Georges MD, Alexandria City VA, Arlington VA, Clarke VA, Fairfax VA, Fairfax City VA, Falls Church City VA, Fauquier VA, Fredericksburg City VA, Loudoun VA, Manassas City VA, Manassas Park City VA, Prince William VA, Spotsylvania VA, Stafford VA, Warren VA, and Jefferson WV.]

Biggest Discounts December Update

Let’s have an update on where buyers are currently getting the biggest discount off the asking price. This data should help potential buyers to know which neighborhoods are softer in terms of sale price discounts off list price, better equipping you when making an offer and helping you know where to look for potential bargains.

In the charts below, we have taken all sales data from the last two and a half months in Redfin’s DC coverage area and sorted it by zip code. We calculated the overall difference between the sale price and the list price. Note that this reflects the final list price, after all price drops in the listing. Any zips with fewer than ten sales are excluded from the top and bottom ten rankings, but interested readers may download the full data summary in Excel format (xls).

Here are the top ten zip codes with the largest overall discount:

This month’s top ten list looks fairly similar to last month’s, with the Great Falls area (22066) coming in way out in front at nearly 12 percent off, and the north corner of DC (20012) also clocking in with unusually high discounts.

The overall discount for the DC area increased slightly from 3.2% last month to 3.6% this month, indicating a slight increase in the willingness of sellers to bargain with buyers.

Here are the ten zip codes with the smallest discounts:

Of the 4939 sales we tracked in the 2.5-month period, 50 homes sold for more than 20% off the asking price, while 909 homes sold for more than asking.

As a whole, the trend is currently moving toward larger discounts for most neighborhoods. This could very well be a seasonal effect. As we continue to watch this data we will be able to get a better picture of what sale-to-list discounts tell us about the overall health of the local real estate market.

City/Town/Neighborhood December Price Reduction Update

Let’s take another look at which cities and towns have the most price reductions.

The following charts show the percent of MLS, FSBO or REO listings that were price-reduced at some point before leaving the market (either sold or removed unsold from the market) in the past 90 days. Cities/towns or neighborhoods in which the number of homes taken off the market was too small to provide believable estimates are excluded from ranking.

For those that are interested, I have uploaded the full data set in Excel format here. In order to keep from overwhelming you with charts, I am leaving out the top ten cities/towns/neighborhoods with the least reduced-price listings from the post, but you can still see that chart in the downloaded file.

First up are the top ten cities with the most price-reduced listings:

Of the 242 cities/towns we ranked in the DC area, 77 had price-reduced ratios of over sixty percent, and 185 (over three quarters) came in with fifty percent or more. Langley Park, Bladensburg, and Forest Glen all made the top ten last month and this month, with a consistently high volume of price reductions.

Getting a little more granular, let’s look at the top ten DC area neighborhoods for price reductions:

51 of the 151 neighborhoods we ranked in the DC area had a price-reduced ratio of fifty percent or more. The neighborhoods of Canton, Congress Heights, Trinidad, and Trinidad / Arboretum / Ivy City all carried over from last month’s top ten as well.

On the neighborhood level, there is a slight tendency for neighborhoods with lower listing prices (per square foot) to have a larger share of reduced-price listings. If you’re looking for sellers that might be more willing to negotiate a lower price, these would be the places to look.

A Look at DC Supply and Demand

Let’s take a look at the big picture of supply (residential listings on the market at month-end) and demand (closed home sales). Having an idea of what is going on with supply and demand can be an excellent way to measure the general “strength” or “hotness” of a real estate market, and often will provide a hint of the future direction of home price changes.

Here’s a brief market summary, based on the data we have available:

November 2008
Active Listings: down 13.8% YOY
Closed Sales: up 3.3% YOY
Median Price: $335,000 – down 21.2% YOY

Our first chart displays the raw supply and demand data back through 2005:

Listings reached their peak in the summer of 2006, while sales definitely peaked earlier in the summer of 2005. No surprise there, as that was really the biggest year of the housing bubble frenzy.

2008 has seen a sustained high (but not record high) level of listings, which as of October and November are beginning to taper off for the winter. Sales have been sluggish, but have remained at or slightly above 2007 levels throughout the latter half of this year.

Now let’s take a look at the year-over-year (YOY) change in the previous chart. YOY is the best way to interpret the direction of the market, due to the highly cyclical nature of real estate.

Sales levels took some pretty heavy hits from early 2006 through the middle of this year, but it looks like they might be coming around to something of an equillibrium.

The bottom line currently is that the sustained low level of demand (as measured by closed home sales) here in the DC area is resulting in a continued downward pressure on prices. In my untrained opinion, it looks like the sales level is going to have to get back up into the 1,500-2,500 range before we will even think about seeing any kind of price appreciation again.

Case-Shiller: Washington Home Price Declines Accelerate

While most of us were out enjoying the holiday break last week, the folks at S&P/Case-Shiller released the latest data for their home price indices, which provides the most accurate measure of single-family home price trends for twenty markets across the country. Since S&P’s coverage conveniently includes each of the eight markets that Redfin provides service in, let’s take a look at the home price data from the S&P/Case-Shiller Home Price Indices (HPI).

Before we get to the charts, let me give a brief explanation of what the Case-Shiller HPI is. To calculate the index, they look at repeat sales of single-family homes over an “arms-length” period of time. Home sales that include things like major remodels, property splits, and sales between family members are disregarded, and sale pairs are weighted based on the length of time between each sale. After all this, the current month’s data is used to calculate a three-month rolling average which is the reported HPI. Data is released on the last Tuesday of every month, for the period two months prior (i.e. – September data is released in November).

For a more detailed explanation of their full process, check out their methodology pdf.

Here are the basic Case-Shiller stats for the DC area* as of September:

September 2008
Month to Month: Down 2.2%
Year to Year: Down 17.2%
Change from Peak: Down 24.4%

The following chart shows the Washington HPI scaled such that the May 2006 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Washington HPI was lower than it was in the latest data (June 2004).

Washington peaked at around the same time as most other Case-Shiller-tracked cities, but has declined slightly more than average, as the latest data shows prices off nearly a quarter below the peak.

Since the peak, home prices in Washington have been consistently declining, at roughly the same rate that they increased from mid-2004 to early 2006. Although price declines appeared to be slowing down earlier this year, the rate of decline accelerated again in September.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare DC’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

In spite of all the government jobs in the DC area, Washington’s price decline has been similar in scale to San Diego’s, on an approximately six-month lag. The values for the 20-city composite HPI also fall fairly close to DC’s price drop pattern.

I would say that the bottom line for DC is that home prices here are softer than many other parts of the country, and currently show no indication of reversing their downward trend. If you’re a home seller in today’s market in DC, it will likely be better to price your home realistically for the market today than to realize six months from now that you have to adjust it down another 5-10% just to catch up with the market.

*[Case-Shiller defines Washington DC as the entire Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area, which includes all of the District of Columbia and all or part of the following counties: Calvert MD, Charles MD, Frederick MD, Montgomery MD, Prince Georges MD, Alexandria City VA, Arlington VA, Clarke VA, Fairfax VA, Fairfax City VA, Falls Church City VA, Fauquier VA, Fredericksburg City VA, Loudoun VA, Manassas City VA, Manassas Park City VA, Prince William VA, Spotsylvania VA, Stafford VA, Warren VA, and Jefferson WV.]