The Redfin Housing Demand Index posted its smallest annual increase so far this year, inching up only 0.3 percent to 93 in September from 92 a year earlier. Fewer people are touring and those who are have less to choose from, but they’re still making offers.
While touring cooled in September, the number of people making offers is up 10 percent compared to a year ago, for the second-straight month in a row. That’s a significant change from August, when we said more people were touring but fewer were making offers. Now offers are holding steady while tours soften.
After three years of unsustainable growth in home values, customers are reaching the limits of what they can or will spend. They’re also stymied by a lack of options, with too few houses to choose from.
The upshot? The healthy pipeline of offers will strengthen sales in November, but price growth will slow to something approaching normalcy.
The Demand Index tracks millions of visits to Redfin.com and thousands of Redfin customers requesting tours and making purchase offers in 15 major metro areas. The index equaled 100 in January 2013, the first month of the estimation period, and is adjusted for changes in Redfin market share.
Last month we said prices would rise 5.1 percent in October and sales would increase 7.9 percent. Since then, we’ve improved our models and now expect prices to grow by 4.5 percent year over year, a slight dip from September’s rate. We project sales will rise by 7.3 percent, down from the 10 percent growth we saw in September.
Price growth will continue to soften in November to a 4.3 percent increase. We forecast that sales growth, on the other hand, will be up in November from October at 8.3 percent. We expect this trend of slowing prices and strengthening sales to continue through year end.
For all of 2015, the Demand Index has held comfortably above 2014 levels until now. In September, it rose only 0.3 percent compared to last year–essentially flat. Prior to September, Demand Index growth was never below 8 percent year over year in 2015.
Homebuyers are still out there, but they’re frustrated by a lack of choice and high prices. Although new listings are up 5.1 percent from last year, the overall inventory of properties up for sale is down 2.8 percent. The typical home in October sells a week faster than it did a year ago.
Buyers aren’t losing their heads or busting their budgets. The percentage of homes that sell above list in October is on track to hit a seven-month low at 24.7 percent. The sale-to-list price percentage also is trending downward.
Looking forward, we think as long as new listings continue to hit the market there will be buyers ready to snatch them up as long as they’re not overpriced. The key question is how long new listings growth will continue. The bear case is that slowing prices will dampen sellers desire to list their homes. The combination of woefully low inventory and high prices could take its toll on buyers and cause sales to shrink.
The bull case is that sellers are in the best position they’ve been in years to make a move, be it trading up, downsizing or cashing out. At $12.1 trillion, U.S. home equity is at the highest level since 2006. Today’s rock-bottom mortgage rates can help keep monthly payments within an affordable range for sellers who want to trade up. There’s also evidence that loans are becoming easier to come by, which could boost sales at year end.
We’re cautiously optimistic on sales for the remainder of 2015, though we think buyers have had enough of over-the-top pricing. Two weeks ago we saw an uptick in offers. Last week they were up again, but not as much. Still, the pickup in offers supports our November forecast for strengthening sales growth.
The Redfin Demand Dashboard provides an at-a-glance comparison of 10 demand-related metrics. The Demand Dashboard tracks the same 15 markets as the Redfin Demand Index.
In September, the median sale price in the 15 metros that compose the Demand Index increased 4.8 percent from a year earlier. Our forecast was for 5.3 percent growth. September sales were up 10.5 percent year over year against our forecast of 10 percent.
The Redfin Housing Demand Index covers the following 15 metro-area markets: Atlanta, GA; Austin, TX; Baltimore, MD; Boston, MA; Chicago, IL; Denver, CO; Los Angeles, CA; Oakland, CA; Orange County, CA; Phoenix, AZ; Portland, OR; San Diego, CA; San Francisco, CA; Seattle, WA; Washington, DC.
A detailed methodology of the demand index and forecast models can be found here.
Redfin Journalist Services:
Phone: 206-588-6863
Email: press@redfin.com
Nela Richardson, Ph.D., Chief Economist
Phone: 206-435-7264
Email: nela.richardson@redfin.com
