The Redfin Housing Demand Index decreased 13.9 percent from February, to a seasonally adjusted level of 108 in March. While homebuyer demand has cooled from its record high of 132 in January, this was still the strongest March since 2013, when the Demand Index registered just one point higher at 109.
The Demand Index is based on thousands of Redfin customers requesting home tours and writing offers. A level of 100 represents the historical average for the three-year period from January 2013 to December 2015.
Compared to February, the seasonally adjusted number of buyers requesting tours was down 5.5 percent in March, and the seasonally adjusted number of buyers writing offers was down 22.8 percent.
The story in March was once again a limited selection of homes for sale, constraining the options for interested buyers. Across the 15 metros covered by the Demand Index, there were 12.5 percent fewer homes for sale than the previous March, marking the 22nd consecutive month of year-over-year inventory declines.
“Lack of selection is definitely an issue for my clients,” said Nawab Manjee, a Redfin real estate agent in Chicago, where the Demand Index level was at 109. “For example, large condo buildings that have hundreds of units will only have two or three listings, with the desirable ones getting snapped right up, where in a more balanced market, you’d have 10 or 15 listings per building to browse, with the assurance that more were on the way.
“My advice to clients is to set up online saved searches for homes that meet your criteria, and the moment you see a property you potentially like listed, go see it the same day. It’s common for hot properties to get offers on the first day. If we get in fast and make a substantial offer, you may be able to convince the sellers to pull the listing off the market before the weekend, when you’d be certain to face competition.”
After a very hot start to the beginning of the year, homebuyer demand is moderating. However, it’s still well above levels seen at this time last year. On a year-over-year basis, demand in March was up 16.5 percent, with 19.2 percent more homebuyers going on tours, and 13.0 percent more buyers writing offers.
“The market is missing its moment because of too-low inventory,” said Redfin chief economist Nela Richardson. “Mortgage rates are the lowest they’ve been this year. Meanwhile low unemployment rates and high consumer confidence should create continued momentum in homebuyer demand. But, instead, we’re seeing demand cooling when it should be peaking. For this reason, we think the 2017 market will be a late bloomer, with new listings coming on later in the year and sales peaking in the early fall, instead of summer.”
Metro-Level Demand Highlights
Below, we provide a slideshow of local charts for each of the metros tracked by the Redfin Demand Index and highlight noteworthy trends and agent insights from a few markets. If you’d like to learn more about a particular market, please email firstname.lastname@example.org.
Oakland, California, Sees Buyer Exhaustion, as Prices Can Only Go So High
The Oakland-area Demand Index was at 62 in March, sharply down from a four-year peak of 175 last November. Homebuyers were writing a seasonally adjusted 28.4 percent fewer offers in March than in February.
“The Oakland market has seen huge price increases over the past few years, with a major additional spike in prices and competition in the first few months of 2017,” said Noah Manning, a Redfin real estate agent in Oakland. “This surge was brought on by a combination of factors: a shortage of homes for sale and increased buyer activity due to the Fed’s forecast of multiple rate raises this year, as well as Oakland being one of the last somewhat affordable cities within reasonable proximity to the tech epicenters of San Francisco and Silicon Valley.
“However, the intense competition and rapidly increasing prices cannot last forever. Oakland’s pullback in demand is likely a result of buyer exhaustion, coupled with a worsening drought of affordable housing options. This has caused some buyers to put a hold on their home search or shift their focus to other areas within the Bay Area, like the nearby towns of San Leandro and Hayward, or the neighboring cities of El Cerrito and Richmond, all of which still offer relative affordability,” said Manning.
Demand in Los Angeles Climbs as Affordable Options Dwindle
The Los Angeles-area Demand Index was at 113 in March, up 16.7 percent from February, and up 48.5 percent from March of last year. Compared to last year, 46.2 percent more buyers were touring and 52.0 percent more were writing offers.
“Pressure for buyers to purchase quickly has increased substantially compared to last year. Meanwhile, affordable options dwindle, especially in hot neighborhoods such as Highland Park, where prices are up about 14 percent from this time last year. There is stiff competition for homes under $700,000, of which there is a very limited selection,” said Ryan Hanke, a Redfin real estate agent in Los Angeles.
“Several of my clients last autumn voiced that they were waiting for a downturn in the market. But, they’ve been waiting and prices have shown no signs of slowing down, so buyers have changed course. They’re getting aggressive to lock in a home before prices go even higher. There is real concern about being priced out, particularly since many buyers are getting anxious about the possibility of rising interest rates. This mindset has led to increased numbers of people touring homes and writing offers in hopes of winning a home in L.A.’s competitive market,” said Hanke.