Fact or Fiction: What does Redfin data say about the health of the U.S. housing market?

Photo by Tierra Mallorca on Unsplash

Is the market starting to return to historical levels, or are we entering a “new normal” for real estate?

The real estate market has been on a wild ride over the past few years. A combination of factors, including the COVID-19 pandemic, record-low interest rates, and shortages in supply created highly competitive markets across most of the U.S.

The market defied many historical trends in 2021 as home prices increased roughly 20% in Q3 (compared to the prior year), homes sold at a record pace, and inventory hit an all-time low. Home prices surged as more people looked to capitalize on the low cost of mortgages. Sellers were juggling multiple offers, with many receiving all-cash offers from investors well above the asking price.

As we moved into 2022, the Federal Reserve attempted to tamper inflation by increasing interest rates multiple times. Over the year, mortgage rates went from “all-time lows to all-century highs”, raising the cost of mortgage payments by around 50%. This has helped cool down the market, but many questions remain:

  • Will there be a crash in prices? Particularly in popular markets during this period (Florida, Texas, etc.)?
  • Is the market returning to historical levels, or are we entering a “new normal” for real estate?
  • Should buyers be waiting for things to cool down, or is now an opportune time?

We are entering 2023 with plenty of uncertainty. Many believe we will start seeing a massive price correction, but others think we will see elevated prices for years to come. To help cut through the noise, we analyzed real estate market data from multiple sources, including Redfin and Freddie Mac. We also prepared an application that will be updated quarterly to enable users to analyze and compare regional markets for data-driven decision-making.

You can access the app by scrolling to the bottom of the page, or by following this link.

In times of economic uncertainty, it is human nature to be curious about the state of markets. This article will help shine some light on what is currently happening in real estate, where we are heading in the future, and how best to navigate this changing environment.


2022 experienced a mix of homeowner sentiment

Inventory remained low, buyers paid well above asking prices, interest rates rose substantially, and there were many warning calls of bubble markets.

More recently, negative headlines are gaining traction. According to Reuters, the Federal Reserve (Fed) may be one of the most substantial factors contributing to the decline in home sales. The Fed has been raising its benchmark interest rate at a blistering pace to combat high inflation. Inflation, as a result, has begun to retreat from the June 2022 peak of 9%. However, the Fed’s fight against inflation continues, creating uncertainty for investors.

Why do interest rates matter? Rates affect the cost of borrowing and the return on savings and investments. For real estate, rate increases lead to higher monthly payments for new buyers and drag down demand.

Figure 1 illustrates the relationship between rates and monthly payments for a median U.S. home:

Figure 1: Home price = $388K; Down payment = 20%; Loan term = 30Y fixed rate mortgage
*Does not consider taxes or fees

A rate increase of 3-4 percentage points may seem insignificant, but regarding the monthly payment, a home buyer will pay 35% more at current rates than they would have in January 2022 for a home of equal value. When comparing current rates to January 2021, the monthly payment jumps by 49%, highlighting the magnitude rates can have on the cost to borrow.

With demand cooling, the pandemic housing market boom may be in the rearview mirror. Sellers once had bargaining leverage over deals. Buyers would, in some instances, waive inspections or increase their initial offer to outbid others. Buyers are now slowly regaining a fair balance of or even flipping leverage in their favor in some regions. “It’s homebuyers who must be wooed,” Axios states, as sellers gave concessions to buyers in 42% of deals in Q4.


Look beyond the headlines and rely on data

We have integrated data from well-known sources to identify insights useful for real estate enthusiasts, prospective home buyers, or current homeowners looking to sell. Our goal is to make analytics educational, creative, and transparent. The facts and figures below support our claims.


National signals indicate a transition to a buyer’s market

Figure 2.1: July-December ‘22 national
Figure 2.2: Green highlights represent Dec ’22

Four variables were selected to gauge where the market tilts, whether in favor of buyers or sellers. After reviewing figures 2.1 & 2.2, three variables favor buyers, and one favors sellers. These variables may not represent all supply and demand factors but portray general market direction.

Homes remain on the market longer as buyer competition dwindles. The average sale-to-list ratio dropped below 100%, meaning buyers now pay less than asking. In a similar sign of support, the percentage of homes selling above asking fell by 51% since July. Prices are dropping less frequently due to inventory levels coming down from summer highs.


The winter season ushers in lower temperatures and home prices for Chicago

Figure 3.1: Median Sale Price for Chicago, IL

Seasonality in home prices is no surprise for Chicago (Figure 3.1). Homes typically see a 10-15% difference in valuation between June and December of the same year. This trend materializes every year, seeing highs during the warmer months and lows during the cooler months.

Figure 3.2: Homes Sold and Inventory year-over-year (YoY) change for Chicago, IL

Figure 3.2 depicts inventory levels returning to where they were the prior year and home sales falling 41% YoY. As demand slumps, a further inventory contraction may be healthy to rebalance supply and demand.


Declining sales and prices impacted Western states the most

Figure 4: YoY change for all 50 states; Regions defined by the U.S. Census Bureau

In search of pockets where prices may have climbed unsustainably during the prior quantitative easing period, there is a case to be made for the West region. The West region has experienced a double dose of downswings in homes sold and median sale prices more than any other region. New Mexico is the only exception. After observing the sharpest year-over-year (YoY) price drop, New Mexico may have found a support level because it was the only state with more homes sold than the previous year.


The housing market is rapidly changing, forcing buyers and sellers to stay up-to-date on the latest news. Understanding trends in the housing market is crucial for making informed decisions, and there is no shortage of variables.

Are you interested in seeing how a specific state or city measures up against others? Would you like to delve deeper into the data?

See below for our application to visualize and analyze U.S. housing market trends over the past ten years. This data is sourced from Redfin and Freddie Mac.

Below is an outline of the tool and how to use it:

Overview

You will notice three pages when viewing the dashboard for the first time. Across the top of each page are selectable filters and user instructions. Follow the instructions to ensure the charts & tables align with the information you desire. Any combination of state and city can be selected to analyze, and the same is true for the benchmark selection.

Page 1: Map View

By default, the first page provides an overview of one selected metric for all U.S. cities. A heatmap will color high and low values red and green, respectively. You will also see a benchmark value for comparison. 

Page 2: Time Series

The second page introduces additional granularities. You can view time series charts covering a variety of housing market statistics at the national, state, or city level. An aggregation filter is also available, allowing you to view actual, month-over-month, or year-over-year stats. Note that you can only select one state or city. To view the raw values, refer to the data table on the right. The national level displays by default.

Page 3: Overlap with Rates

The third page contains the same filters as the second and introduces mortgage rates. Note that mortgage rates are represented at a national level and applied equally to every state/city. You can select multiple metrics to analyze alongside mortgage rates in the time series chart. Keep an eye out for possible correlations, and remember that regions may act differently than others. To view the raw values, refer to the data table on the right. The national level displays by default.

Stay tuned for updated data and insights next quarter!


If you have a general interest in data or questions about data management or advanced analytics — head to databenderconsulting.com for more information or follow us on LinkedIn and Facebook.

Interested in working with us?

Reach out to us and we will make sure to help you achieve your business goals!