SEATTLE — A new national housing index that aims to predict the direction of prices and sales activity suggests the hot market could cool off more sharply than expected.
Seattle-based brokerage Redfin says its demand index, which was to be released Thursday, is “the industry’s first and only measure of housing activity prior to purchase.” The index is based on millions of visits to Redfin’s website, thousands of requests for home tours and offers written on homes in 15 major metros, the privately held firm said.
U.S. homebuyer demand in June was up 13 percent over the year, according to Redfin, a smaller 12-month gain than in previous months. Redfin forecasts that home prices will be up 4.3 percent over the year in July and 2.2 percent in August, amid a sharp slowdown in sales.
“We think prices are topping out,” said Nela Richardson, Redfin’s chief economist, in an interview. “The answer for many buyers is just wait, don’t push it.”
With its new index, Redfin enters a crowded field of housing market indexes. Some rely on home sales, while others are based on surveys of consumers, realtors or homebuilders. Redfin says its index offers an earlier signal than other housing-market indicators, such as the S&P/Case-Shiller index and the Zillow Home Value Index. Those indexes are based on sales that have closed and don’t incorporate buyer activity.
Moreover, many housing-market indicators are published months after the fact, limiting their usefulness to consumers trying to make decisions now. The S&P/Case-Shiller index, which was developed in the 1980s, reports home-price gains from two months ago. The Freddie Mac House Price Index is calculated monthly but is only published quarterly.
“Those indexes are looking at the past,” Richardson said. “This index is positioned to tell us about the future.”
The demand index published this month, for instance, is based on demand through early July and forecasts July and August prices and sales. Fewer people are making offers, and list prices for homes going under contract are lower, the brokerage said.
The seasonal slowdown this year is more extreme than normal because buyers are tired of bidding wars, rapidly escalating prices and relatively few choices, Richardson said. Moreover, their purchasing power is being eroded by gradually rising mortgage rates.
The index “captures qualitative information our agents know firsthand,” she said.
The demand index will be published on the last Tuesday of the month, the same as the Case-Shiller index.
In developing its index, Redfin says it adjusts for the firm’s market share growth by taking the raw number of website visits, tours and offers in a given month and dividing by Redfin’s share of sales over the prior 6 months. The index is scaled to equal 100 in January 2013.
Because all of Redfin’s agents in more than 60 U.S. markets are employees, rather than independent contractors, the brokerage says it’s the only major brokerage able to track every step in the buying process and aggregate the data into an index.
To forecast prices and sales nationally, Redfin combines its internal data with that from multiple listing services in the 15 metros. Unlike the Case-Shiller, Zillow and Freddie Mac indexes, Redfin will not be publishing index values at the metro level for now.
