A Wild Ride, Somewhere Near the Bottom of the Ocean (April Roundup)

Every month, Redfin publishes two newsletters on real estate prices. One, usually published on the last Tuesday of every month, is a Redfin Roundup, which synthesizes data collected by economists, government agencies and others to provide a complete portrait of what happened in the market over the past month. The other is Redfin Insider, usually published by the 12th of each month, which analyzes our own databases to identify the major trends in listing inventory and prices as well as sales activity and consumer traffic. To receive these newsletters by email, just sign up! Here’s the April Roundup:

Howdy Redfinnians!

All the April real estate numbers are out, so it’s time for our monthly round-up of everything that moves in U.S. real estate! First, our big Redfin news is that Agent Insights is a huge hit: in markets like Seattle, San Francisco and Washington DC, Redfin agents have published first-hand insights on 10 – 30% of the listings that debuted since the website feature launched, everything from “the 4th bedroom isn’t legal” to “significant water damage” to “spectacular view” to “on a bus line, but electric so very quiet.”

Very, very good stuff. Our data providers limit us to sharing data with registered users, so sign in and start searching! Hopefully, we can help you pick the homes to see before you get in your car.

Prices Down, Sales Up

Alright. Now. WHAT ABOUT REAL ESTATE PRICES? The data are mixed. February prices fell across every city in the U.S. except Detroit, almost re-visiting the pre-tax-credit April 2009 low:

The West has been much more volatile than most of the East:

I was surprised to see DC-area prices slip in February:

The Next Six Months Are Going to Be a Wild Ride

Prices nationally are at the level first reached in Q2 2003, wiping out almost a decade of appreciation. But the number of homes sold in March rose by 3.7%, whereas most economists expected only a 2.5% increase.

This is exactly in line with the forecast we published in the Wall Street Journal on February 10, where we wrote that “January and February numbers will be woeful. But…March will be better.”

What will happen next? After nine months of falling prices, the next six will probably be up and down. April and early May will soften again — March new-construction contracts were dreadful, and applications for home-purchase loans just ticked down — but the summer looks strong to us.

Redfin has been setting records over the past two weeks for accepted offers, with most of that business set to close in June. For the first time in a long time, you hear folks on Wall Street talk about “hefty gains for housing prices over the next 5 – 10 years.” Whether this is true or not, just hearing that kind of chatter raises one of my substantial, hairy eyebrows…

In A Falling Market, Bidding Wars

On the ground, a shortage of high-quality inventory still frustrates home-buyers. Rising rents are just starting to push first-timers back into the market, but they’re getting blown out by cash buyers, who now account for a record 35% of purchases.

Listing agents continue to under-price properties ahead of the falling market to create bidding wars: in many counties, we’re seeing a bizarre combo of month-over-month price drops and sale-to-list ratios above 100%. This tactic started with bank-owned listings, but now it’s often the way regular listings are priced too.

As we predicted over and over again, foreclosures began falling in 2010, a trend that continued in the first three months of 2011: by 15 percent from the previous three months, and by 27 percent from the same period last year. Some of this is temporary while banks sort through the robo-signing fiasco, but mostly banks have figured out that they lose less money negotiating with the owner than foreclosing on properties. Shrinking foreclosure inventory is one reason further wrenching drops seem unlikely to us.

Interest Rates at 4.8%, Affordability At 20-Year High

The x-factor is interest rates. Rates on 30-year mortgages rose to 4.9% through most of April, but fell back to 4.8% this week. Because the rest of the economy is recovering modestly while interest rates and prices have mostly stayed low, home affordability is at its highest level in 20 years or more, according to biased sources like the home-builders and the Realtors, but also according to slightly less biased sources, like Wells Fargo and Zillow too.

We know we sound like a Realtor — “record affordability!” — but baby it’s a fact. The long-term question — debated even by the great real estate economists Robert Shiller and Karl Case — is whether real estate will be like groceries, which account for a smaller and smaller percentage of our income over time, or if housing prices rise with income. If real estate is like groceries, affordability doesn’t matter much.

We won’t settle that issue here, but you can weigh in by leaving a comment below. As always thanks for your Redfin support!

Best, Glenn

When Wall Street and Main Street Disagree

It was the best of times, it was the worst of times, these last nine months. Since July, the stock market has increased 29%. Over almost the same period, housing prices have declined more than 5%.

At the end of last week, just before sales of new homes fell again, to more than 80% from their 2005 peak, and on the same day that a new poll showed the man-on-the-street’s economic pessimism hitting a two-year low, the Dow rallied for a 52-point gain.

Wall Street and Main Street have never been so far apart. What’s going on?

David Stockman, the Reagan Administration’s budget director, blames Wall Street speculation. He wrote yesterday that “casino capitalism on Wall Street” is almost unrelated to the “disemboweled, off-shored economy on Main Street.”

But speculation isn’t the only problem. The basis for the stock-market rally is improved corporate earnings, not an influx of speculative capital. Technology, financial services and oil & gas businesses are reporting huge profits.

But all of these sectors are noteworthy for their ability to grow without much hiring. And that’s what these businesses have done, profiting by selling more products yes, but profiting even more by doing that mostly without adding people, handing out raises or otherwise spending more money.

I don’t blame anyone for it, but the latest rally has in effect been a squeeze play. The result is a windfall for stockholders like me, but most of that money hasn’t reached home-buyers on Main Street.

This becomes obvious if you just listen to this Wall Street Journal story of a typical family on the Olympic Peninsula struggling to keep its home: a 14-year-old child dies, the father slips into mental illness, the mother gets cancer and loses her job.

These hardships happened years ago but didn’t take an immediate financial toll on this middle-class family; in 2006 the family augmented its meager income with a second mortgage on their home, which is only now about to foreclose.

It’s a perfect example of how Wall Street has recovered from its excess of borrowing, but Main Street hasn’t. Most people’s credit ratings will be thrashed for years after Goldman and Citi have returned to triple-A status; these folks won’t be buying houses any time soon.

So one reason that housing has declined for everyone except investors — whose activity in the housing market is at an all-time high — is that the would-be buyers of those houses are distressed, too. In most markets, including Atlanta, Seattle, Chicago, San Francisco and New York, price drops have been concentrated in the low- and middle-end.

There are other factors, including the limited liquidity of the housing market and the slow pace of price discovery, the absence of quality inventory as sellers wait for better days and buyers hold out for better deals, but the simplest explanation is that the housing market is down because the middle class is down.

The stock market is up because the upper class is up. Eventually, as we’ve argued before, the money will trickle down and the whole economy will buck up. Already housing is at its most affordable level since 1975. But even so, Main Street can’t always afford it.

Endurance

It’s fashionable these days to talk about a startup as a roller-coaster, with ups and downs, flips and flame-outs,  twists and turns. There’s some truth to that, and even more drama and glamor.

But roller coaster rides last five minutes, not five years. And as any venture capitalist will tell you, the average holding period for a successful early-stage investment is now approaching seven years.

It’s a new problem. Whereas the 90′s generation of startups either went public before the bubble burst or died trying, this generation is now entering an awkward adolescence: generating revenues, growing fast, still privately held.

Many entrepreneurs didn’t expect to still be at it: in the many, many lists of heroic traits an entrepreneur is supposed to have, no one includes endurance. Yet in my experience, the most common reason startups end is not because they run out of cash but because the entrepreneur runs out of gas.

Even so, some dispute that endurance is desirable, let alone important. When an entrepreneur leaves her own company, we’re supposed to nod sagely and say that this is the natural way of things, that she is better suited to starting companies than building them.

This may be true of entrepreneurs at many companies but not at the greatest ones: Microsoft for 32 years under Bill Gates, Apple for 35 off-and-on years under Steve Jobs, Oracle for 34 years under Larry Ellison, Amazon for 17 years under Jeff Bezos, Google for 15 years with Larry Page and Sergey Brin, now Facebook for 7 years under Mark Zuckerberg.

We rightfully celebrate these entrepreneurs as geniuses but I feel sure that what they value most about themselves by now is their endurance. Compared to the many talents with which they were born, endurance is the only trait these entrepreneurs have had to earn. “I can’t go on like this,” they tell themselves each year. “I’ll go on.”

In the age of the long startup, this endurance has become even more important, especially for entrepreneurs less talented than Larry Page or Bill Gates. The only plaque I have from my years at the company I co-founded, Plumtree, isn’t our IPO tombstone — I threw it out in my last move — but a cheesy piece of lucite we gave everyone on her fifth-year anniversary.

The five-year award is a tradition we’re starting this week at Redfin, in recognition of our first five-year veterans, Allie Howard and Bryan Selner. Allie and Bryan are, as Redfin’s Fernando Ferrufino likes to say, the Original Gangstas who made Redfin into their own thing, which has in turn become our thing.

Without Allie, Redfin would be much, much less fierce, in its advocacy for its clients, in its intolerance for mediocrity, in its bad-ass attitude generally. Without Bryan, Redfin would be less exacting, less thorough, less thoughtful, less pragmatic, less team-oriented, less goofy and nerdy.

But what have Allie and Bryan gotten out of Redfin? It’s a serious thing to walk into a startup on a lark and come out years older; and in an age of secondary stock sales and recruiting revolving doors, it’s more unusual too.

The simple answer to this question is, I think, love. Love is a strong word, but I find myself using it more often as the days pile up at Redfin, to describe the brilliant people around here who have stuck together through ups and downs. It gives a thickness to our life at work.

The other reason Allie and Bryan are here is because they believe in what we’re doing. What people fear most in their careers is the absence of any arc or substance, which leaves us to float in the air like that mesmerizing piece of garbage in American Beauty – moved by forces we don’t understand, hardly able to keep going.

Compare that heart-breaking aimlessness to the intensity of Mark Zuckerberg in The Social Network. I just loved watching him alone, plugged into his laptop, listening on headphones to the film’s min0r-key soundtrack. You feel an almost pelagic sense of peacefulness and then that midnight blooming of creativity which give sudden weight to our lives; it’s one thing the whole sordid soap opera really got right about startups.

And it’s a good place for Mark to be, right there, thinking. There have been many, many nights where Redfin has been, for me, the same kind of good long groove: the place where I belong, the work I should be doing, the thing I believe in.

And it can be hard to get your groove back, or to find a new groove. When I read about a Google rapid-response team running around with billions in money and stock to throw at anyone who threatens to leave, I think the real problem there must be meaning, not money. If you have to pay someone $50 million to stay at a job, it’s time to start over with a new team, and probably a new mission too. This is exactly what Larry Page is now trying to do.

But if you’ve still got something to believe in and live for — a work project that will be a multi-billion-dollar force for good in the world or, more personally, a life that sits at the center of a family — the only problem is leaving not staying. Gabriel Garcia Marquez wrote about this on the final page of Love in the Time of Cholera, which I still remember, 20 years on, as if I just read it:

The Captain looked at Fermina Diaz and saw on her eyelashes the first glimmer of wintry frost. Then he looked at Florentino Aziza, his invincible power, his intrepid love,  and he was overwhelmed by the belated suspicion that it is life, more than death, that has no limits.

“And how long do you think we can keep up this goddamn coming and going?” he asked.

Florentino Aziza had kept his answer ready for fifty-three years, seven months, and eleven days and nights.

“Forever,” he said.