Housing Demand Posts Strong Gains in Q3
The Redfin Housing Demand Index increased 5.1 percent from August to 131 in September, after remaining essentially flat around 124 since May, according to Redfin (www.redfin.com), the next-generation real estate brokerage. The month-over-month increase in demand was driven more by growth in early-stage home-buying activity than in the more serious stage of offer-writing. The number of people requesting home tours increased 11.2 percent from August to September, the largest monthly increase in 16 months, while the number writing offers increased by 8.1 percent.
“There are a couple of explanations for the increase in buyer activity from August to September,” said Redfin Chief Economist Daryl Fairweather, who authored today’s report. “One is that rising mortgage rates motivated some buyers to look for a home before rates rise again. Second, inventory usually falls from August to September, but this year it rose 0.7 percent, giving buyers more homes to choose from.”
Fairweather continued, “in metros like San Francisco and Boston where inventory has increased, buyers are interested in exploring all of their options. However, research by psychologists has shown that when people are faced with more options they have a harder time making a decision for fear of making the wrong, or sub-optimal, decision. This phenomenon is reflected in the fact that touring activity increased more than offer activity as supply increased.”
“Buyers hear that the market has slowed and are curious to see what’s available, but in general I find that today’s buyers don’t have the same strong sense of urgency to make offers that they had this time last year,” said Alec Traub, a Redfin agent in Los Angeles, where the Demand Index increased 18.1 percent in September, the largest month-over-month surge posted across the 15 metros tracked. “Buyers tell me they like a home, but they don’t love it. Last year, buyers would jump to offer on a home they only liked, but now they are waiting to fall in love.”
Boston, where the Demand Index was up 2 percent in September from August, is a good example of what’s happening nationally. In Boston, growth in homebuyer activity has primarily been driven by an increase in buyers touring, but not necessarily offering on homes. Inventory in Boston grew 17.1 percent in September from August, which is high compared to national inventory gains of 0.7 percent during the same time frame. Likewise, the number of Bostonians requesting tours grew 19.6 percent month over month in September, but the number making offers only increased 3.9 percent.
Though Redfin saw a notable increase in the Demand Index from August to September, it was down significantly from 2017 levels. Last month, the Demand Index was down 10.2 percent since last year, the eighth consecutive month of annual declines. Though both the numbers of buyers requesting home tours and of those writing offers fell year over year, the overall decline in demand was driven by the latter. The number of homebuyers requesting tours fell 1.2 percent, while the number writing offers was down by 13.7 percent. However, when taking a broader view, the Demand Index is now above 2016, 2015, or 2014 levels. This goes to show that buyer demand is still relatively strong, just not as strong as it was in 2017.