Every month, Redfin publishes a newsletter about real estate prices out to a few hundred thousand people. A few hundred write back. The tone of the responses depends on the tone of the original newsletter. If we argue that the market will improve over the next year, as we did in Southern California at the end of 2008, we are crucified, even though we turned out to be right. If we argue that the market will decline, as we did yesterday, we are praised, even though we may turn out to be wrong.
I try to answer every email. It usually takes a few hours. One or two have complaints about our service, which I try to resolve. Some have questions about very specific areas like northwest Washington DC or a neighborhood in San Diego, which I can’t answer without the help of one of our agents. Whenever we mention interest rates, I get political rants, often about immigrants too (I am the grandson of immigrants who were very lucky to be allowed in, so I never know what to say).
And we always get parents trying to help their children, usually by complaining about the decisions made by a son-in-law, as in: “My son-in-law sold my daughter’s NYC apartment to buy Phoenix houses at the peak. What should I do?” For some reason, I enjoy answering those the most.
Almost every month, someone offers better insight on the market than the original newsletter. For example, when we argued yesterday that demand was weakening even as distressed inventory declined, Dennis Oldroyd, aka deejayoh at Seattle Bubble, wrote back to argue that the inventory was also limiting demand. It was such a good argument that I asked Dennis if we could publish his comments, and he graciously granted our request. Here’s Dennis’s email:
Hey Glenn – Enjoyed the newsletter today. One quick thought for you on demand. I think too much is being made of the drop in new home sales as being indicative of a major drop in demand.
The issue with new homes is not demand, it is supply. See the attached chart from Calculated Risk – the ratio of sales to starts is very high. Housing starts are at a ~40 year low — so given that it looks like the market is clearing everything that is being built, I am not sure how the market could service any more demand.
Overall demand may have slowed – but that doesn’t appear to be the core issue driving down new home sales.
Also, if you look at the ratio of sales to starts going back for the last couple years, it is clear that the market has been drawing down inventory of unsold houses over time. What I have read in other places is that the inventory of unsold homes is quite low. Given you have the bully pulpit of the blog, I thought I’d share my viewpoint.
Thanks Dennis! I agree that stale inventory or limited inventory is part of the problem, but still think demand is weak too.