Mike Simonsen is the founder and president of real estate analytics firm Altos Research, which has provided national and local real estate data to financial institutions, real estate professionals, and investors across the country for more than 15 years. An expert trendspotter, Mike uses Altos data to identify market shifts months before they hit the headlines.
In this episode of the Top of Mind podcast, Mike Simonsen sits down with Taylor Marr, deputy chief economist at Redfin, to talk about the big trends shaping today’s housing market. Taylor shares some unique (and surprising) insights from Redfin data, talks about where he sees mortgage rates and home prices going this year, and busts some common myths about housing affordability. He also tells us why uncertainty is the biggest risk this year rather than recession or inflation.
About Taylor Marr
Taylor Marr is the deputy chief economist on the research team at Redfin. He is passionate about housing and urban policy and an advocate for increased mobility and affordability. He laid the framework for Redfin’s migration data and reports and diligently tracks the housing market and economy.
Before Redfin, Taylor built financial market index funds for Vanguard at the University of Chicago. Taylor went to graduate school for international economics in Berlin, where he focused on behavioral causes of the global housing bubble and subsequent policy responses. Taylor’s research has been featured in the New York Times, the Wall Street Journal, and The Economist. He was also recently the President of the Seattle Economics Council and collaborates frequently with the Fed, HUD, and the Census Bureau.
Here’s a glimpse of what you’ll learn:
- The biggest housing market trends coming out of the pandemic
- Which unique insights we can get from Redfin user and agent data
- Where he sees mortgage rates this year and the threshold for consumers to buy
- What’s happening with affordability, and what the media gets wrong about it
- How to look at price reductions as a predictive tool
- Where Redfin sees home prices going in 2023
- Why uncertainty is the biggest risk this year rather than recession or inflation
Resources mentioned in this episode:
About Altos Research
The Top of Mind Podcast is produced by Altos Research.
Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.
Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.
Welcome to the Top of Mind podcast from Altos Research. This is the show where we talk to real estate industry insiders and experts about the trends shaping the market today. Enjoy the show.
Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to the smartest leaders, thinkers, and doers in the real estate industry. For three years now, we've been sharing the latest market data every week in our Altos Research Weekly video series with the Top of Mind podcast, we're looking to add context to the discussion about what's happening in the market from leaders in the industry. Each week, of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People desperately need to know what's going on right now in the housing market. It, you know, it was frozen so solid last fall, and then suddenly the landscape changed the spring.
And is it changing again? Right now, everybody's worried about what happens in 2023. So if you need to communicate about this market to your clients, go to altos research.com. You can book free consultation with our team, uh, about how to use market data in your business. But speaking of data and informing people about the market, I have a terrific guest today. Taylor Marr Taylor is the Deputy Chief Economist at Redfin. He is passionate about housing and urban policy and is an advocate for increased mobility and affordability. I can't wait to talk about those two topics today. Taylor's research has been featured in New York Times, the the Wall Street Journal, the Economist he is, who's also recently the president of the Seattle Economics Council and collaborates frequently with the Fed and HUD and the Census Bureau. So, Taylor, welcome to the show. Thanks
For having me. Great to be here. You've had a lot of very interesting guests on your show, and I'm happy to be a part
Of it. Tha thanks. Yeah, really great to have your perspective on here. Um, we haven't talked before, but we're, we're Twitter friends, so this is great. Like, I'm looking forward to, to learning about you and, and your take, uh, and your research that you've done. And, and, and also obviously, you know, Redfin has such a, uh, a strong, uh, position and to, to track the market. So we're gonna learn about what, what Redfin knows too today. So let's, great, let's, um, let's get started though with you. Like, tell, tell me about your, your background and like how you developed your expertise. And, you know, those of us who care about things like urban planning are in a, in a small niche, <laugh> of, of the universe. So, so tell me about, tell me about that and, and, uh, like how we got here.
Yeah, well, great question. You know, so I grew up in Iowa, so not someone you would expect to be, uh, you know, fascinated with urban planning. But, uh, you know, I studied economics in undergrad and have since moved a lot. So I'm passionate about cities and working with data and migration. Uh, so my wife and I have been married over 10 years, and we're in our 15th home across five cities and states. So you could say that my passion for migration and housing as a personal one, I've moved quite a bit. Uh, but I started my career out in Seattle in 2012 as a data analyst analyzing data and, and really growing in that skillset, uh, that I built, uh, studying economics. Uh, it wasn't until grad school that I went to in Berlin, Germany, where I started to focus on my research on the housing bubble, and in particular the policy responses and the DOD Franks act and, and what regulations went in place to address the housing crisis and, and the financial crisis that ensued. Uh, and so it was in 2015 that I joined Redfin and started to really dig into all of Redfin's fascinating data sets. Uh, started to research cities, urban planning and, and how all of that connects with the macroeconomic environment. So it's been a wild ride, but really I got started with building out my skillset in data and analyzing data, and that's always been the lens through which I, uh, come to my work,
Man. So, 15 homes in 10 years.
Yeah, that's right. So I
Get like, I get like anxiety just like thinking about it. What, how did that come about?
Well, you know, we talk so much at Redfin and in my research about the importance of where you live and the neighborhood you live in matters quite a bit. The home type, uh, people care about commutes, and I've found, uh, through moving a a lot, it's really opened up access to opportunity. Moving has enabled, you know, new job opportunities, new experiences, uh, and also new quality of life with changing, you know, moving into a single family home once you have kids, uh, going through that life cycle of home ownership. Uh, but ultimately we are pretty flexible and dynamic and, and moving around a lot has really enabled a lot of great opportunities. One of the thing that strikes me is that people don't move as much as they used to. In fact, they move about half as much as they did 50 years ago. And mobility rates across the US have have declined for about 50 years consistently, uh, for a lot of reasons. But ultimately I think people don't move as much as maybe they ought to, uh, to create some, you know, opportunities and, and connect people to jobs in better quality of life.
Yeah, so half as much, I knew that it was declining. It went from like seven years to more than 10 years, but it's, it's really half as much we move these days. And so let's talk about that. Like, I'm interested in the reasons for that, but also the implications of that. So what are, what are the biggest reasons that you see that people don't move as much anymore?
Well, part of it is housing affordability. Housing has gotten extremely expensive in a lot of the places that offer the best opportunity, the best neighborhoods within a city, but also the best labor markets like the Bay Area, New York City, dc These are places that are vibrant, lots of jobs are booming there, but housing has just gotten too expensive. A lot of that's because they're not building housing. Zoning codes really prevent a lot of housing construction in the places that are best suited to attract new workers. Uh, so that, that's one aspect, but there's other nuances such as, uh, codes across state lines like occupational licensing prevent people from being able to easily move across states. So, so there's a wide variety of reasons why people aren't moving or, you know, across the country as much. But even within cities, uh, people move less frequently. They're sitting in their home on average about 12 years, we're finding, uh, which is more than doubled from about a decade ago. Uh, so they're staying in their homes longer, even, you know, when you look at demographics of who's moving, uh, people are just sort of locked into their home. Um, and a lot of that really has to do with housing affordability.
Yeah. So that is affordability. Like I, I have a house and I have payments based on 12 years ago, but if I move now to, to move up or equivalent, like it's significantly more expensive home even well now with rates up, but even a year ago. Is that true with rates when rates were falling? Mortgage are super low.
So when mortgage rates fell below 3% during the pandemic, it really incentivized a lot of people to move. Uh, so we did see increased mobility during the pandemic, particularly among homeowners rather than renters, because homeowners had a buildup of equity and they also were able to take advantage of, of the low rates. So it shifted them, you know, more to the suburbs or towards more affordable markets. Um, and, and that was a key factor during the pandemic. You know, right now that rates are higher, it's certainly locking more people in place. Uh, before the pandemic, it was the case that renters had a hard time breaking into, uh, home ownership, uh, overall. So across the country, uh, with the exception of a number of more affordable places that, uh, attracted a lot of first time home buyers. But in a lot of other cities, uh, even though incomes are growing, housing prices also were, were growing much faster.
So over the last, uh, several decades, we less, we move less because each time, each decade we go to move, it's more, it's a big chunk of money. It's more expensive. You mentioned occupational licensing, which I hadn't thought about, but that's really interesting. Uh, you can imagine as, as over the decades, as those types of things get more red tapey, it's really hard to think about picking up and moving whatever my profession is to a new, to a new place. Are there other things like, uh, dynamics like over that same period we've had generally decreasing mortgage rates, interest rates over the last decades? Did that lead to people staying in place more?
Well, it's hard to say. Um, there's sort of conflicting forces. So on the one hand, you know, more rates decline, you could just refinance. You can tap into that equity that you've built up and remodel your home. That certainly makes it more feasible for people to stay at home. Uh, there are specific state laws such as in California, the tax laws that, uh, sort of lock in lower taxes, also strongly disincentivize moving. And we do see that people stay in place much longer in, in California than elsewhere. Uh, so there are some, you know, local nuances there as well. But, uh, alongside drops and rates, you also face competition from first time home buyers that, you know, it just got more favorable to own rather than rent. Um, so it's not always a net benefit for, for move up buyers, you know, when rates do do fall. So, uh, and there's been a gradual increase in competition coming from investors. They make up a larger share of the market now as well, uh, which is, you know, a, a fascinating trend.
Yeah. So, so let's talk about those too. But one question. So I'm a, I am a, uh, vocal, I'm a California resident and a vocal anti prop 13 tax law, the worst tax law ever, uh, that is the most distortive to the market. It's just crazy to watch what happens there. Um, where, so for people who don't know in California, you buy a house and you keep it forever, and your, your property taxes basically never go up a little tiny bits. And so, you know, um, you know, if you could, you buy a house and you buy a $2 million house in San Francisco, your neighbor who's had that house for 50 years, you're paying maybe like whatever, a thousand percent more in taxes. You're paying $50,000 a year or $40,000 a year, and your neighbor is paying 500 or 5,000 or something like that. Like it really, it's nuts. And, uh, and as a result, if you're that first neighbor that you know, you, you don't ever sell, you, you'd never move. Um, did, did you have a number? Do you know how how long in California they, people don't move?
I believe not on average. It's about 15 years right now, um, that, that the typical for sale owner turns over their property,
Right? So it's 12 for the country, 12 for the country, and it's 15 in California because it's a really good deal to not move.
That's exactly right. Yeah.
Yeah, yeah. That's okay. That's interesting. So, um, you mentioned the investor phenomenon. So over, especially over the last decade, and as rates have dropped really low, it's also been a really good deal to own property, uh, as an investor. And so people have been doing it. One of the things I notice is the trend, it's like a doubling up trend, is I, I watch people like I go, especially when rates are four, 3%. They're like, I'm mo I am moving, but I'm might, I'm just gonna keep the first house as an investment property, and now I have two mortgages at 3% rather than, you know, one at six. And so like that phenomenon has really taken inventory out, uh, of every year we watch inventory, available inventory of homes to, to, to buy. Do you have other stats or, or insight to share on like the investor trend and, uh, you know, things we should know about there?
Absolutely. Investors bought nearly one in five homes, uh, over the last year in that were available for sale in the market. So investors were swooping up a lot of properties. You know, they really ramped up activity overall throughout the pandemic. Uh, but you know, before the pandemic it was closer to 13, 14%. So we saw a significant jump not only in their purchases, but also in the, the share activity that they were making up. Uh, so, so that priced out a lot of people in certain areas, and those properties that were for sale did transition on net to the rental market. So it created some long-term rental options for people, uh, which is good for renters in general. It shifted some supply, uh, but overall that does limit some of the home ownership opportunities for some people. So investors definitely ramped up their activity, but they're pulling back sharply.
Um, they're still elevated a little bit, but they are reacting, uh, a little bit more than other home buyers in the broader market to higher rates. And I think a lot of that has to do with the uncertainty of where home prices might go. Investors don't want to be, uh, you know, caught holding a home that is declining in value faster than they expected. Uh, but overall, aside from just investors, um, if people are holding onto their home and they're more likely to purchase the second home, we saw a big rise in second home purchases during the pandemic, particularly in vacation spots. Uh, but if they do that, if they're holding onto their original home when they buy their second home and decide to become a landlord and rent that out, the one problem with that is as new construction, uh, gets added to a market that can trickle down for affordability, uh, by filtering down to middle class and lower income households, when middle income people free up their starter home and move into those, you know, nice newer homes in a housing market.
But if they're holding on to their starter home and becoming a landlord, then that means that the traditional mechanism that affordable housing gets created is a bunch of new construction frees up older homes, uh, to, to get moved into or to get purchased. Uh, if they're now just vacated by renters, then, uh, that limits really a lot of affordable housing options. One of the things that we looked at for 2022 is that there were half as many affordable homes for sale in 2022 as there were in 2021. So we did see in fact that not only were there, uh, you know, affordability challenges with higher rates, but actually there were just so few listings hitting the market, and particularly in those starter home price ranges. Uh, so that really created many fewer options for first time home buyers during 2022. And according to data, we did see a lot of first time home buyers we're just priced outta the market and who were buying homes were significantly older people, um, who, you know, were, were able to remain in the market, maybe take equity in purchase with cash.
Yeah. So half as many affordable homes in 22 as 21. Uh, and so yes, mortgage rates obviously, but also the limited inventory. So how do you define affordable?
So in this analysis, we looked at, uh, what is the typical monthly payment that's available on a home, looking at the, the asking price of the home that's available for sale, what's the current mortgage rate for the month that it was for sale? And then what are typical incomes in those local counties? Uh, what can they afford at 30%? So if you can afford that monthly mortgage payment for, for 30% of your, your total gross income, then that would be an affordable home. And we look at all of those affordable homes, uh, across time. Typically what we'd expect to see is about half of homes available for sale are affordable to the median income, cuz the median would be about half. So there'd be more people making more income that can afford the more expensive homes. Uh, and that would be somewhat of a balanced market, which is where we were in about 2013.
Since then, affordability has eroded, uh, incomes just haven't kept up with how mortgage payments have increased. And in 2021, even when rates were at 3% prices boomed and we only saw about 40% of homes were available, were affordable, uh, of those that were afford, uh, available for sale. Sorry, it's a mouthful. And then that really fell from 40% to 21% in 2022. Um, so, so it was really being hit with the double whammy of fewer listings, particularly starter homes hitting the market, as well as rising rates pricing out a lot of homes from being affordable
For breed affordable. So here's, here's an interesting, uh, question. Something that I wrestle with The, uh, one of the, the housing bubble arguments. The, the, the, you know, the folks who think like housing price home prices must decline from here and maybe decline a lot. One of those arguments is the affordability argument. It's the, it's the, there, there aren't enough affordable homes for the buyers and therefore home prices must correct down. That's the, that's the argument. Um, I have some opinions on it, but I am curious what your take on that, like it, the predictability of home price corrections as a result of unaffordability.
I'm really glad you brought that up because I do think, uh, related to one of the other things I wanted to discuss, which is what's often, it is this exact point that home prices sort of have to correct to re or revert to the mean their long-term trend, uh, whatever trend they create, such as price to income ratio over time or something. And, uh, and I do think the analysis we've done on affordability really look at looks at what supply is hitting the market and how does that supply match up based on what you would typically expect to be affordable for, uh, the median income. There are a lot of nuances with affordability and, and this is where I think, uh, traditional headlines might get it wrong a little bit, is affordability is much more complicated than, uh, with some of those simple price to income metrics over time.
And why you would expect there to be a housing bubble because prices are too high. The reasons for that are because you have to look at mortgage rates and look at mortgage payments, which we did in our affordability analysis, but you also have to look at, uh, other means of payment that people might be able to mitigate some of those affordability challenges. So a lot of boomers right now are sitting in homes and they've built up trillions of dollars of equity across the US that they're able to cash in on and maybe pay cash for a property, uh, or move in and take advantage of low mortgage rates. And that's an aspect of affordability, which is sort of the wealth effect that economists like to call out the wealth that's built up either through home equity or through other means. So during the pandemic we had trillions of dollars of subsidy go out to, uh, American people and that extra cash was built up.
A lot of that was used to fund down payments. We saw down payments increase during the pandemic. A lot of that extra cash came from fiscal policy, uh, or other means during the pandemic. Um, like the student loan moratorium allowed people to save up a little bit more cash as well. And these other aspects of funding, um, are often missed with discussions on affordability, uh, or, or, you know, why prices maybe are unsustainable if you just look at how home prices have grown. Uh, and so those are some, some nuances. I think it's important to look at demographics, um, you know, in older population might be able to support a different level of, of affordability than a younger population. And also that trade-offs are okay, so some people are okay to pay more for, for a home cuz they're purchasing more amenities. So California should almost coastal California should almost always be less affordable than, uh, you know, rural South Dakota.
And that's just because there are certain amenities that you're purchasing when you're, when you're buying access to the sun, to the jobs and, and all of that. And so inevitably you would just expect to spend more of the typical income on housing there, maybe, uh, have a longer lifetime of, of renting versus owning. And that's okay. Those are trade offs that people make. Uh, it there does need to be new construction to, to create some of those affordable listing options. Uh, but I do think people kind of miss some of these nuances when you're looking at affordability.
Yeah. Uh, lemme tell you, I grew up in Chicago and that California sunshine is worth every penny <laugh>. It's the middle of March North every penny. Uh, so, you know, the, the, the, the, you're talking about the median price versus the median income, uh, in, in, in a market. And one of the things that, that we, and I think you kind of, you kind of, uh, talked about this, what is, the way I've looked at it is essentially inventory per capita. It's the number of people fighting per for those available homes. And, and if inventory is a third of where it was a few years ago, it doesn't have to be affordable to half the people. It only has to be affordable to, to significantly fewer people at, to be, to keep it sustained pe the prices sustainable.
Exactly. And that's what we're seeing right now. One of the things that confounds a lot of predictions is that prices are pretty stable. The latest data in our release today shows prices declined for the first time since 2012, uh, but not even by 1% year over year. And part of the reason for that is we are seeing about 20% fewer listings are hitting the market this year compared to a year ago. And sellers they can sit in place and opt to not sell their home is sometimes when the market cools off from higher rates. We see a flood of homes hit the market and that really exacerbates how much prices cool off. Uh, right now we're seeing the opposite. That supply is pulling back about just as much as demand, uh, maybe slightly less, but because of that, we are seeing prices are overall remaining, uh, relatively stable.
So they are down, but, uh, some people would've expected prices to be down five to 10% by now. Um, whereas we're just not seeing that even in the latest data. Now as time goes on and we still experience, you know, some of the higher rates, our outlook is that prices will probably be down about 5%, um, you know, later this year. But, but overall, um, you know, sellers can accept what price they receive and, uh, and if they don't receive the price, they can opt to hold off the market and that's going to keep prices relatively elevated on, on what's left.
That's okay. So the Redfin outlook is about 5% price decrease for 2023, and, uh, with the assumption that restricted supply keeps a sort of floor on price declines even though demand is way down.
That's exactly right. And, and at least that's what we've seen basically play out over the last, uh, three or four months or so in the data, is that, uh, you know, prices just really haven't accelerated. We saw the sharpest drop in terms of home values, uh, back last August when the market was reacting sharply to the jump in rates. But since then, uh, they're still declining about 0.3% per month. Uh, if we carry that forward for the next six months or so, looking at k s Schiller for example, then the peak to trough, uh, by that time would still only be about 5%. Um, from there on rates have, have stabilized even come down a little bit from their peak. So that would bring a little bit more stability and, and prices from there. Uh, but, but so far that's basically what we've observed. Now, there's a lot of uncertainty as to what can happen from that point on. Uh, there may be a banking crisis or a recession that we enter into, we'll learn a lot, uh, about what the Fed plans to do and how the economy reacts to, to all of that. Um, and that could definitely change what happens with prices. But for now, based on the latest information we have, um, that outlook seems fairly sensible to me.
That's great. And that's actually a good, a good time to talk about Redfin a little bit and, uh, what you get access to in your hands, you know, and, and how that looks. Tell me about, tell me about the Redfin data process that you get to, that you use and, and, and your work there.
So when I first joined Redfin, I was so excited to jump into all of our excellent data. We have more than 50 million monthly users across our website, and we get to track the entire home buying process, which is pretty unique. We get to see how customers are planning to buy a home where they would like to buy a home in their searches. Uh, they can save searches and say, Hey, I prefer to live in this city, uh, with this budget. So we get to view not only, uh, what their preferences are, but then also how they carry that out based on what homes are hitting the market, how they tour these homes with Redfin agents. And in particular, one of the unique things is we get to even analyze what does it take to win a bidding war as they're making offers with agents and facing competition. So we get to track the life cycle of different, uh, home buyers, uh, even as they consider renting now on Redfin. So we have access to all of this data tracking both the for sale and the rental market, all the way down to what's happening with agent behavior.
So that's really cool. And, and, and, uh, I think we talk a lot like, especially on Twitter, about, about the market, about the houses. What do you see in the users right now? So here's, let me, uh, you know, we have, you mentioned this like since the beginning of the year, a bunch of us have been surprised about sort of how robust things have been. Uh, you know, if you expect, you know, followed November December through I, you know, I expected inventory to be building and demand to be still falling off, but those turned around at least until maybe banks started failing. But, but they, uh, but they turned around. So tell me about the user data that you've seen through March. What, what do we know?
So what we know is that there's still a lot of interest. So some people have completely, you know, just decided mortgage rates are up. I'm not going to even think about moving right now. Uh, but we have been surprised that overall there's still a lot of activity of people googling homes for sale. They're searching on Redfin, uh, and they're touring homes with, with agents reaching out to them. Where they stop is in the time of making an offer. They're struggling with affordability. How, how to handle rates. Are rates going to drop next week by half a point, are they gonna shoot up? Is now a good time to lock in? So they deal with these questions, and we also have a mortgage company called Bay Equity. And these customers, you know, are, are talking closely with lenders. They're talking closely with agents and wondering how much power do I have here to get the home price lower?
Uh, so all of this is, what we are seeing is really buyers are sort of sitting on the sidelines. They're wanting to buy, they're feeling like there aren't many homes for sale when they are making offers. Uh, they're, they have more power, but they're really just struggling with the higher rates. So one of the things that buyers have been doing that we've found working with our agent data is that they've been increasingly asking sellers to give them concessions on home sales. So maybe they'll make an offer for a home that's listed at 500, they'll make an offer for let's say four 90, but then they might also say, uh, can the seller kick back $10,000 to cover the repairs for a roof or to put towards, behind down a mortgage rate? And that behavior is something, again, that's unique to Redfin data that we can kind of track how sellers are giving this money back to buyers through the offer.
It's also something that the data misses a little bit because we might be able to track sale prices, uh, but we can't fully track, you know, how much extra are buyers also getting back. So maybe they're getting the home for 2% under asking, and we're seeing some weakness in prices, but maybe the seller's also having to give another three 5% back to the buyer, uh, in the form of a concession. And so they're at a record level right now, and that's something that is helping buyers through higher rates. They're able to take that money, particularly from builders. There was a builder outside of Seattle that gave $80,000 back to the buyer, uh, towards buying down mortgage rates and, and really mitigating with, uh, some of the affordability challenges.
80 grand. Yeah, 80 grand. That's, those are some serious concessions. And so when you say concessions right now, and I saw you tweet this the other day, concessions right now are at a record level that is in terms of percentages of homes, deals that we see happening, that we know that there are concessions in as opposed to the volume that the 80 grandness of it, that's the, the quantity of them.
That's exactly right. Yeah. How common are they for the typical buyer getting from the seller where the seller has to not only sell the home, maybe for under asking, but also give an additional amount back to the buyer to close the deal,
And, and so would you say, so concessions at a record level, uh, is that, uh, a long history? Is that like Redfin, like I started Alto 17 years ago and you know, Glen had just taken over at, at, at Redfin, like that was like a long time ago. Is is that concession history go that far back?
So our data reliably goes back to 2012 where we can see happened basically for the last decade. And, uh, and, and this 46% would be the highest amount during that period of time. Now, during the housing bubble, there may have been other forms of, you know, buyer power that that might have been happening, especially from builders. But, uh, but as of now, this is kind of the time period we're talking about,
Right? So, and, and that and that the last decade's been all strong. So what's interesting, what I'm wondering is like, you know, have, we've been sort of under concessioning for maybe for the decade, uh, and now it's like getting back to a much more common place. Like I, you know, I bought my first house 20, whatever, five years ago, no, seven years ago, something like that. And, you know, it's like there were, it was all concessions, right? Like that was the whole, the process, right? You know, and, and um, you know, I bought my second home in 2001 in Silicon Valley, like after the bubble burst and it was, it was still like all of those things. So, um, and then, uh, you know, but in the recent times it's like, oh, it's a bidding war. And like, no, I guess I have to wave getting an inspection, you know, like all the, the things. Um, and so really seeing those come back, it's almost like, you know, this is what the process should be. Um, and you could imagine if there were a normal level of homes for sale, you know, that, that we would, maybe we'd have even more of those,
Perhaps. I do think, uh, pricing is the main way that buyers and sellers come to the table to negotiate. Uh, and sellers are a little bit firmer on pricing right now. They're already having to drop their price. They're having to accept and offer well under asking, as the market has cooled so rapidly, I mean, never has mortgage rates more than doubled within a year. And that abrupt change to affordability means that buyers not only have this additional power to, uh, to get a price drop, to get it for under asking, but this newfound power to get additional concessions may be, uh, due to the speed. So in a normal more balanced market with inventory, yes, there, we'd still expect some concessions, uh, but we'd expect instead the market to be more balanced based on prices rather than on throwing in these extras, uh, which also cost the seller money. Maybe the buyer feels like it's a win, uh, on top of that. But, uh, but overall, you know, what we would normally expect to happen is really just to have a more balanced market for, uh, for people buying the home relative to the asking price.
Got it. Yeah. Okay. So, um, these are on the margins. Yeah. Uh, alright, so, and that actually brings up another point that we've talked about recently, uh, which is, uh, price reductions. So, uh, price reductions are also high. And, and, and here's an interesting way to think about it. I think you reported that in February the, the price reductions and the concessions were at the, the record highs in, in, in your data. Um, and, uh, and I like to, I think I pointed out that, that these are of the sales that closed in February. These are homes that did price reductions while they were listed in the altos data, the price reductions peaked in whatever it was late November, which was like when those February home sales were on the market, right? So like, that was the, the thing. And, and so there's interesting ways to measure price reductions, price reductions on the homes that are closing now, on the homes that are, that are on the market, or the ones that newly kicked in this week, like who cut their price this week when you know the banks fail, who panics? Uh, did, did you notice an uptick in price reductions this week?
So not really. Price reductions are elevated still in our, in our latest weekly data. In terms of the, the count of how many, uh, sellers are having to drop their price, they're, they're much higher than any time in the last four years for the spring market. Um, you're right, they're down from their November peak when, when it really was a lot of, uh, the market freezing up and sellers having to react sharply to high rates. Uh, in February, about 14% of homes did drop their price that, that were actively available for sale. Um, but in the month of December, uh, more than 50% of homes sold for under asking price. And so the, the majority of homes either had to sell for below asking also the number of homes that sold, that dropped their price at any point while they were on the market. Um, I believe was also over 50% in the month of, uh, December two.
So, so as the market cooled off sharply, and at the end of last year, you're right that, you know, looking at just the weekly flow of, of price drops kind of mass all the homes that have had to drop their price at least once in order to close the deal. Uh, and then on top of that sell for under asking, um, which, you know, really added to the pressure, uh, uh, on top of the concession. So all of those three things together, dropping their price, selling for under asking and then giving money back to the buyer and form of concessions really paints a little bit weaker picture for the seller. Then you might otherwise get looking at any one of those metrics
That's, uh, really, really insightful. Uh, have you done any work on the predictive nature of price productions, like houses on the market now and it takes a price cut cuz there's no demand out there? What does that imply for the final sales price later on?
So certainly there are cases where price drops can fuel a bidding war. Some people try that strategy where they cut it really sharply and then they get, you know, instantly a couple offers. Most price drops are ones that they were just a little too aggressive on their pricing initially, so maybe they should have priced it at 500 rather than 5 25. Uh, and they were just testing the water. And then after their home received no offers for two to three weeks, they decide, okay, maybe I, I tried a little too hard, let's drop the price. So that's the majority is just that price drops are simply, um, capturing the, the part of the distribution of sellers that were, uh, trying a little bit too aggressive. Um, that said, uh, price drops, they do notify a lot of buyers. They can generate offers. Someone opens up their Redfin app that says, Hey, the home you favored just dropped their price.
That does generate tours. People, you know, it can generate some demand, but you are better if you actually price your home right the first time. You get a lot more views and tour activity when you price at 500 the first time. Then you do after you drop your home to 500, uh, three weeks after suiting on the market. The reason for that is a lot of people just filter out homes that have been on the market more than two weeks and, uh, they, they just don't care. They just want what's fresh. Uh, because there are so few homes hitting the market every week, um, they, they really just need to stay on top of every listing. So it's much better, you're gonna get more activity price in your home, right the first time when you debut than, uh, than having to do the strategy of, of ratcheting it down.
And oftentimes what we saw happen last year is that it was sellers playing catch up, uh, week after week, and the number of homes that had to drop their price more than once, uh, really started to escalate. And it's because they maybe dropped their price to 500 after a mortgage rate shot up, but then it was already too late and they had to drop it again to 4 75. And so that started to happen as well where, uh, you can end up chasing the market and, uh, and really struggle to, um, receive an offer by then.
That's a really, really great insight. The, the fact that pricing right the first time actually generates more views and more tours. And there used to be an old, um, you know, saying that, like, there's some people I've heard say, you know, if you didn't do one price reduction, you underpriced your house. But it's really fascinating to see that we're in a world where that may no longer be true. And, and we've observed that, you know, about, uh, as a, as a simple heuristic, uh, about 30% of homes overpriced and they take a price cut before they sell it a sort of normal market. And some of that's, you know, strategic and some of it's a, you know, wacky seller and some of it is accidental and, and so, um, uh, but, but, uh, you know, it's about that. And so, you know, when we watched last year, you know, price reductions, if we think 30 is normal and we see, you know, only 15 have taken price cuts, like that's a hot market.
And then when it changes really abruptly like it did last year, that was, uh, a real signal. Um, and, and, uh, I think it's really, that's a powerful observation about, in terms of being able to see the number of views and the number of tours and things like when it's priced right in the, in the first time. Uh, is is a great, is a great point. Are there other things that you like in, in your data, in the Redfin data or in your, your work that you like as a, uh, as a particularly powerful, uh, stat to pay attention to?
Yeah, so we have a Redfin home buyer demand index that I, I find really unique because it captures people who are reaching out to Redfin agents to tour home. And, uh, and this is a seasonally adjusted index we track every week, uh, with how buyers are reacting to things like drops and mortgage rates. It's a little bit earlier in the home buying process than someone, uh, locking in a mortgage application often. And so it can be a little bit more of a leading indicator in terms of what we'd expect to happen with pending home sales and, and closed sales. So it's a great gauge of overall home buying demand. Uh, but, you know, otherwise we really just try and keep in touch with our agents and their commentary in terms of what's happening with bidding wars, with competition, with how busy were the weekends in the DC area or in Seattle.
And those insights are tremendously valuable because those anecdotes really tell us where to look in the data. So this past week, I, I heard that there was a lot of competition touring homes, uh, over the weekend in the DC area. And as, as that happens, it really causes me to wonder, you know, how many people are actually still facing decent competition even though competition's lower, they're still facing, let's call 'em low ball bidding wars, where you're trying to each offer, you know, five to 10% under asking, and you wanna get that home significantly under to help with higher rates. You think it's overpriced, you know, if home values might fall further, but, uh, but you know, you need to price that into your offer. And if other people are trying to do the same because there aren't many homes available for sale, then that's just a really fascinating thing that, you know, you might not see in the data, uh, very easily when you, you know, look at the overall sales stats.
That's cool. So the, the agency I find in genetic notes really great too. It's mostly probably for confirmation bias for me, but it's, it's like, you know, like, okay, you're saying what I think it's is supposed to be saying, but do you have, do you quantify, uh, the agent reactions? Like, do you like have a, uh, yes, I'm busy this week kind of flag that you can go across all your Redfin agents.
We do have the share of Redfin offers that faced competition, and we track that over time and by market and by, you know, by property, by price point. And we try and understand, uh, you know, where is competition really starting to escalate, uh, or where has it fallen off where buyers can get a really good deal right now? Um, that that's been, you know, one unique, uh, data point that we've been tracking.
Great. So yeah. Yeah, for sure. You've got the competition. Uh, and then the buyer, it's a, you called it a buyer interest index.
It was a, a home buyer demand index. Yeah,
Demand index. And this is, uh, these are people on Redfin who demand I'm writing down who reach out to agent, like, okay, time to go. It's like early lead conversion for you. Uh, or maybe it's down the funnel, right? You already know who the people are, but they're now like, okay, time to take action. And then you control for seasonality, which is nice. I suppose you also control for, for growth and reach as a, as a company, do you have to do that? Like, hey, we've been, uh, we've been doing good marketing this this quarter.
That's exactly right. You know, we, we do have other controls with, you know, the slice of the market that we are paying closest attention to that we have good representation of, um, for that. And it does track well with other measures of demand, you know, that lead in into home sales. Uh, so it's, it's been a helpful gauge for understanding people reaching out to agents.
And how, how sensitive is it? Like, will you notice a change week to week or is it more of like, take a few weeks to go, ah, that's starting to trend.
We will notice changes week to week. So when mortgage rates, uh, you know, dropped off over a week in December and in January, you know, we instantly saw home buyers reaching out to agents to, to our homes. And the question was always, well, how long until we can actually see that jump in sales? And the reality is about three to four months, because we are sitting in the middle of March and we just saw the first major increase in existing home sales reported from nar, whereas we were seeing this early signs of, of an uptick in activity happen all the way back in December. And, you know, significantly started reporting on that in January as buyers were reacting to this. The problem is it just takes some time for them to tour homes, make offers on homes, go under contract, close the deal, and then we get to see that in the data reported, um, you know, months later.
So that's what I'm excited about is being able to capture that. And you know, what I can say about the, the jump in our existing home sales is that since that period of, uh, of February when a lot of homes closed, you know, rates have risen during the month of February, and that really priced out a lot more buyers from the market. So it may be a blip, we'll probably see a little bit of a decline, you know, in, in the following months of sales. But, um, but overall, you know, that's kind of how I think about the, the timeline of the data.
Great. So this is actually a great transition. Let's talk about the future. Let's talk about the rest of 2023. You already said you're expecting, uh, negative 5% on home price appreciation for the year. Uh, do you have sensitivity to ba maybe based on the, the home buyer demand index? Do you have, uh, uh, a, a take on where consumers are, like the threshold of, of mortgage rates that we go like, oh, they're buying now? Do you have a take on that?
Well, it's definitely a spectrum. You know, what we do see is that the level itself does matter. Um, certainly a lot of, uh, home buyers are priced out of the market when rates are at 7% or six and a half percent. Uh, but what also matters is the trajectory and where they expect rates to go. So a lot of buyers right now expect rates to go lower, and they might say, well date the rate the home and you can lock in at six and a half, maybe, uh, pay a little bit of money up front for a two to one buy down, which gets your rate lower in the short term, and then they might expect to refinance in the future. So that's partly what's, uh, messing up the sensitivity to rates. In terms of the overall level, it's certainly a spectrum, but the, the outlook matters a lot to them.
Most people do expect inflation to moderate the fed eventually to back off and start cutting rates, um, at some point. And as both of those things happen, or maybe even recession fears escalate, all of those forces could push mortgage rates down lower. Um, even we could see just simply the risk in the mortgage market sort of level out. And we could see spreads of mortgage rates relative to 10 year treasuries decline as any of those factors take place. You know, that could put rates closer to six and a half to 6%, um, within this year, which is within our outlook, we expect rates to fall below 6% before the end of the year. And all of those things would cause buyers who are interested, they're touring homes, they're reaching out to Redfin agents, uh, but they're just priced out and they're sort of waiting to jump in when rates fall. And we've seen a, a very intense sensitivity to rate declines of buyers jumping in when, when rates fall, um, week to week. So we do think 6% seems extremely high compared to the 3%, uh, during the pandemic, but overall, buyers are finding ways to mitigate this with adjustable mortgages or paying points on a loan, uh, and really just have expectations with, um, potentially moderating rates in the future.
That's interesting. Okay. So you, you're expecting rates below 6% by the end of the year, so generally drift lower. Uh, what about, uh, what's your take on the risks this year, recession, inflation bank crisis? What, what, what, what, what do you think, uh, which ones should we be paying attention to, uh, specifically for their likelihood, but also for their likely impact on housing?
Well, I do think overall, um, fear tends to be overblown in terms of, you know, people freeze up when there's a lot of uncertainty and it's hard to make decisions under uncertainty. One of the things I studied, uh, in grad school was behavioral economics about making decisions amidst uncertainty. And, uh, and I think that's one of the key factors here that really help people make decisions. Uh, going into such uncertain times. We don't know how long it's gonna take before inflation can really moderate as much as the Fed would like to see. Uh, we'll learn more every month about what the Fed is doing to, to navigate inflation and to con continue that fight while also holding off a banking crisis or other cracks in the economy from emerging. Uh, there's also fiscal policy and, and things that can be done with taxation and all of that to also mitigate some of these problems.
Uh, but ultimately I think there's risk of recession that's higher now because of some of the maybe overlooked areas in, in the banking system, but I think the, the Fed and, and the treasury and other departments have the tools to essentially manage some of these things, some of these risks. So markets tend to overreact to new information, uh, and a lot of it just has to do with, whoa, there's a lot more uncertainty. Now, that uncertainty can also help the housing market because it can cause mortgage rates to decline a little bit. And, uh, and if you're someone who can be confident in navigating that certainty, then that can bode well for you. Uh, it's important to be quick to react when rates drop, uh, or, or when the market dynamics change. And so it's important to stay on top of those events, but, um, but typically things sort of swing too far in one direction or the other.
So rather than worry about recession or inflation per se, it's the uncertainty of those events that is really the thing that you, you see holding home buyers back demand back.
That's exactly right. And I, you know, it, it is clear that the overall economy, that the labor market is going to cool off. Uh, you know, as we've seen in the housing market, things have been cooling off for more than a year since the Fed has been raising rates and, uh, even pulled back purchasing mortgage backed securities as things have, uh, started to slow down in the broader economy, you know, whether or not we enter into a recession or not, it's clear that overall economic activity is going to slow. The overall labor market is going to cool off a little bit. Um, as more workers start to enter the labor force, maybe that results in more unemployment. Uh, but you know, the overall trend is what, what kind of matters. The bigger picture, whether or not we're in a recession or, or there's sort of risks in a particular SEC sector, uh, matters just a little bit less than sort of the long-term dynamics at play.
Yeah, that's great. That's a great take. The, uh, uh, you sound actually more sanguine about, uh, prospects than, than some people are, but, but the actual uncertainty being the thing that, that, uh, holds people back, would that, are there conditions where scenarios where, let's say that job losses hit sooner or, you know, recession hits more abruptly, are tho are those those scenarios where then you would suddenly say, wow, our 5% is needs to adjust our fi our call for our expectation of 5%, uh, home price decline for the year? Or is that set pretty much?
No, that's, that's, uh, exactly right. Every month we are meeting as a team of economists to sort of navigate the new information and, you know, some months we've drifted higher than our baseline outlook. Some months we've drifted back down lower. Um, but on average, if you look back at how things have progressed over the last six months, uh, we're pretty much tracking right along with, with what we would've expected. So things have been volatile, uh, they've boomed up and they've boomed down, uh, and crashed a little bit in different places. Uh, but on average, things have actually been, uh, moving along a little bit more predictably than you might expect, um, overreacting to some of the, you know, short term movements. Uh, so that's what I would say if, if we do see, you know, the banking crisis really escalate into more sectors of the economy, maybe, uh, you know, credit tighten significantly, that could certainly cause us to, you know, revise our outlook.
Um, but we also don't want to overreact to just potential scenarios. Um, and so what we have seen though, amidst the rising layoffs, particularly in tech, is that it's hit West coast markets, particularly hard home values have fallen much more sharply in Seattle, San Diego, San Jose, uh, than they have elsewhere. Um, they've fallen more than 10% from their peak according to the latest case shoulder data. And that's expected to, uh, have continued to decline, uh, since then. So it's certainly the case that, you know, what's happening in certain parts of the economy are hitting certain housing markets, uh, you know, much more intensely. Um, but, but overall we're also trying to balance that out with some places that are much more resilient like in the Midwest and in the northeast.
Do you have a take on why the West coast markets have got hit harder on price in the last year?
Well, there's a few different reasons for it. I mean, the first, uh, markets out west tend to always be more volatile than markets in the Midwest. So anytime there's fluctuations going back more than 50 years, uh, in the overall economy, they're more cyclical. They, they boom in price and they bust in price more than, uh, more stable places like Chicago. Um, so we would've expected that. But in particular, we've seen, uh, very quick declines in, uh, prices in places like Seattle and San Francisco and, and those are very tech heavy sectors that have been hit not only, you know, with overall mortgage rates like everywhere else, but also, you know, the Nasdaq tech stocks have really seen a big, uh, correction, so to say. And they were in a bear market, they had a really tough year last year, and that creates a big wealth effect. That means less money flowing into the local housing markets in those areas, um, which has really shifted demand down further than maybe other places that are less reliant on income from, uh, from, you know, tech stocks or, or other means like that.
So you, you think that is maybe as a wealth effect, I mean, ye yes, we sort of, we see obviously the volatility higher on the upside, faster on the downside, um, but you also see it as a wealth effect in there. Do you see it as a migration effect?
Remote work definitely played a large role in Seattle boomed for 10 years. Uh, from 2011, uh, through 2020. In 2021, it had a net outflow of people for the first time and more than a decade. And a lot of people left the metro area and moved to places like Phoenix or Boise, uh, during the pandemic California as well. More than 180,000 people left the Bay Area just in 2021 alone. And, you know, ever since 2015 it accelerated every year with people leaving the Bay Area because it got so expensive. That certainly compounds the drop in, uh, demands as people can move to more affordable places. In fact, we saw that with a lot of expensive markets that the more expensive you were, the more sensitive you were to changes in things like Morgan traits, cuz it heavily encourages buyers to relocate and search for more affordable places when rates go up and you're in an expensive area. So that's definitely what we saw happen in our migration data. Uh, the share of people moving that are looking to relocate outside their metro area, um, has hit a, a recent high, about 25%, um, which is out from just 20% before the pandemic. So more people on redfin.com are, are looking to move away from their local metro area, and that's significantly, uh, you know, intensified in these more expensive markets like in California and in out west.
Interesting. Uh, more migration on Redfin. That's, that's, uh, maybe that's a, a long term positive thing.
And that's actually a good transition. We're, we're already, uh, coming up on an hour. I can't believe it. One thing I'd like to, to ask my guests is about your view of the longer term future. So, uh, mid, mid decade, later in the decade. Tell me about your view of, especially since you've been your, you're interested in migration and, and affordability. Uh, are there trends that you're optimistic about or that we should be, that we should know about, or things like that that we should think? How, how do you look at the, the later in the decade?
So, some of the recent trends that I've been excited about, uh, really has to do with the nuances of zoning reform. There's been a number of places that have, uh, changed their zoning to allow for more housing construction. Cities are wonderful places that connect people to great job opportunities or other opportunities in life. Uh, but the benefits of that have really been held back because there isn't enough housing in those prime locations. Um, and increasingly they're only available to, uh, high income folks that can afford to, to pay high rents, um, to have that access. So a number of cities have been trying to address this challenge by changing their zoning laws to allow for more housing construction. We saw this most, uh, notably in Minneapolis of their city, completely overhauling zoning and in favor of more multi-family construction. Now, there, there were a lot of, uh, reasons that that wasn't completely done yet.
Uh, meaning that sure they can allow duplexes, but they had other restrictions like setback requirements or, or height restrictions that held back some, uh, multi-family construction from happening. But the effect we've seen so far is that there has been a boom in multi-family construction Minneapolis, and that's resulted in a drop of rents finally for that area. We've seen this start to take place in other cities and throughout California and Oregon. Uh, and so there's been momentum in terms of changing the, the code to allow for more housing construction. This is really encouraging to me because it takes many years before you can actually see any effects of this and, and really builders can file permits, build the buildings, um, and, and create opportunities for people to, uh, move into these areas and cities to expand transit to those areas. So it's sort of a long-term trend, but, uh, but that shift, you know, is underway already and we're seeing some encouraging progress there.
That's great to know. So you can, we can actually, uh, measure impact of zoning changes that, that a city is like we we're changing zoning because we need more affordability and guess what? We're actually measuring more affordability in some of those places. That is encouraging, that is indeed encouraging, um, to, to watch. Okay. Taylor, uh, it's been a terrific conversation. I really appreciate your time and your views on the world and, and all of Redfin's, uh, deeply insightful data and, and, and skill and, and presenting it. Both you and, and, uh, Daryl Fairweather. Like, uh, I, I appreciate the work that you guys put out, uh, on the Redfin team very much. Uh, thank you so much for joining us. Um, so where should people find you?
Well, thank you so much for having me on. And yeah, you can find me on Twitter, um, at Taylor Amar and, uh, you know, you can also go to the Redfin blog to see all of the great data and research we're putting out there at redfin.com/news. Um, I also write a weekly newsletter on CK that you can find on my Twitter as well, uh, where I really am just reacting and digesting the latest week's news and housing data.
Okay. Let's ck I, uh, will put links to it and see if we can get you some, some, some subscribers to your ck That's really terrific. Thank you so much everybody. This is the top of Mind podcast from Altos Research. If you, uh, need to, you can, you can find Taylor's work on the Redfin blog. So that's redfin.com/news. Uh, on his Twitter, Taylor Amar, uh, and his ck You can always go to altos research.com and do your local data. And you know, we're in this world where everybody is confused about what's happening in the market and things are changing very quickly. Uh, so I really appreciate your, your, your insight on what is happening, what's not happening, and uh, thanks so much and we'll look looking forward to more. Thanks for listening to top of Mind. If you enjoy the show, I'd really appreciate leaving a nice review on your favorite podcast app that helps other people find us as well. Be sure to subscribe so you don't miss future episodes