The First Dip as Tragedy, The Second as Farce (May 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 May Roundup:

Howdy Redfinnians!

Time for the latest round-up on real estate prices! But first, we want all of you to drop everything and upload your gorgeous photo to your new Redfin profile, so we can welcome you back to our site in style.

We Were Wrong

Now to the numbers! Let’s get this out of the way right off the bat: we were wrong. In February, we wrote that we expected prices to start bucking up in March and April. The March Case-Shiller numbers out Tuesday showed a .8% drop nationwide. But then we were right: a day later the numbers used by the Federal Reserve came out for April showing a .7% increase. Crazy, right? As we wrote last month, after nine months of falling prices, the next six will probably be up and down.

Few Buyers, But Few Sellers Too

It’s a bumpy ride because supply and demand are racing to the bottom. Our website added a million users in the first three months of 2011, then went flat, as buyers began to pull back. But new listings are falling too: bank-owned listings declined 6% this spring, and the regular stuff declined by 14%. Would you sell right now if you didn’t have to? If a pretty house does hit the market in one of the big cities, there’s usually a bidding war.

And when sellers won’t sell and buyers can’t buy, summer sales volume goes down the drain. From March to April, closed transactions declined .8%, and pending sales fell 11.6%. That’s the bad economic news. The good news is that even if prices are up and down, they aren’t going to drop another 9% from May – December, as some have claimed. We think the second dip isn’t going to be like the first one.

And No, We’re Not Lying Scuzballs

But before making our case, let’s remind everyone we’re not lying scuzballs.

When prices were still rising, Redfin went on national TV last June to say that the market would become like a fat man who couldn’t get up. In September, we emailed all of our customers in Seattle to say prices would decline another 10%. Many of our customers changed their minds about buying a home back then; it cost us a lot of money but we’re glad they did. So as John Kerry would say, we were for the double dip before we were against it.

How Do We Get Off the Bandwagon?

Now that the band-wagon is rolling downhill fast, we want off of it. The New York Times front page published a glum report on the Case-Shiller index likening the slump to the Great Depression, the day before the numbers came out. A day later, same newspaper, same reporter, but the headline was now: Bottom May Be Near For Housing Slide.

If you’re getting that here-we-go-again feeling, maybe it’s because you’ve just forgotten how sickening that feeling once was. In the West, check out how steep the drop was from 2007 – 2009:Case Shiller Home Price Index

Now focus on the last two years:Case Shiller Home Price Index

It’s the same story in the East and Midwest. The first dip was a doozy:Case Shiller Home Price Index

The second, not so much, at least not yet:

Now past performance doesn’t predict future results but does this look like the middle of a roller-coaster ride, or the end? Bubbles last longer than you’d think, and so do declines, because of the market’s emotions, what Robert Shiller calls “animal spirits.” So figuring out when greed trumps fear is never an exact science.

The Banks: Bleeding Out Inventory, Not Gushing

However much the market wallows in its misery, the truly catastrophic drops were driven the first time around by banks determined to liquidate assets at any price. There’s still plenty of shadow inventory, but new foreclosures hit a 40-month low.

Why? Foreclosures are now taking an average of 400 days to complete, compared to 151 in 2007, mostly because of loan-modification regulations, not the robo-signing scandal. You could build a house, using crude stone tools, in the time it takes a bank to repo one. So most banks are shifting toward short sales, which hold their value a lot better than a foreclosure.

Sure the whole economy is getting scary again and the stock market run ended a month ago; all heck could break loose in employment, government credit and consumer confidence. But when there are reluctant sellers, bidding wars, declining distressed inventory — and mortgage rates just now dropping to 4.55% — we just don’t see what else could drive a steep drop in prices.

Feel free to disagree. We’ve been wrong before and you’ve been right. Just leave a comment below and give us your take.

Have a good June and thanks for your Redfin support!

Best, Glenn

Discussion

  • http://twitter.com/james_alley James Alley

    Charts in this latest missive tell the story: the current “double-dip” downturn in housing, and the overall economy, is technically a second dip but it doesn't look (yet) like it will be a huge crash like the second dip of the Depression. In fact, it looks to me from the charts that we're just bouncing along the bottom for the last couple years. A classic bottom. If we're in the second act of a double-dip, it may be, I suspect, a run-of-the-mill six-to-nine month recession, a slight pullback to growth. Gas prices alone would justify a slight pullback and minor recession; it also directly affects real-estate, because house-hunting takes a lot of gas!

  • Ajperry

    Hello Glenn – I think your charts are a bit misleading.  In the cases of both the West and Midwest, the first dip charts and the second dip charts have different maximum's and minimums.  What do the charts look like when the maximums are 300 at the top for the West and 250 at the top for the Midwest? 

    Best Regards,

    Anthony
    ajperry@apdb:twitterhome.com

  • Andre

    I'm still waiting for this real estate market to get worse which I hope it does and I'm almost positive it will so I can finally buy a descent house and live debt free!

  • http://www.facebook.com/profile.php?id=727275754 Lani Rosales

    I wouldn't underestimate the role of robo-signing as a major linchpin in the crash… my two cents :)

  • http://www.facebook.com/profile.php?id=727275754 Lani Rosales

    Also, we applaud your willingness to lose business by being honest, a part of your culture we've admired even when we have our differences. :)

  • Dgisby

    From where I sit, it seems as if the realtors are keeping housing prices low and making them lower, by scaring people into pricing their houses so low with the threat they won't sell; if a house by stats has a value of $100,000, but the amenities, upgrades and such inside make it worth $150k, and the house down the street foreclosed at $90k, why should that really push the non-forclosed house down other than its in the same neighborhood.  If someone wants to buy a 4 door beat up Buick versus a newer Mercedes with Navigation, there is a big price difference…why not so in housing too?  THis is what makes me crazy.  Please set me straight here, as this has been bothering me for a while.  I have TWO homes I'd like to sell but am renting out until this craziness is over!!!

    • http://www.facebook.com/profile.php?id=727275754 Lani Rosales

      I think your analogy of a Mercedes vs. Buick is close but where I think you've been misled is that Realtors determine prices- all they do (and I am not one) is recommend a price and the client chooses to accept it or not, they're in the driver's seat.

      • Dgisby

        True, but they are all in the same “network” and I've been told, as have other people i know is that no one will show your home if its “overpriced”.  Everyone wants to sell a $650k home (which i had appraised before i listed it) for $450,000.  Who needs a realtor to do that, i can put a sign on my own front lawn and call it a garage sale!!! The issue being that my house has no comps in the area as i have one of the few homes with acreage in the Atlanta area, and the home is updated to 2011 standards.  I ended up refinancing it so i could take advantage of the interest rates, and when the mortgage people appraised it they came in with $645,000, so i know i'm not crazy.  No realtor wanted to list it for that, i'm guessing it was too much work to sell it, its easier to sell the lower priced houses than the more expensive ones, faster commissions…. 

        THe other problem i encountered is the redfins, zillow, etc, “appraised” my house according to the ones in the immediate area, never mind the lot sizes are no where near the same, and the quality and details inside the house are not taken into account.  I am not the only one in this situation, my sister in Deerfield IL has same issue, her house is appraised at $1million but the realtors won't list it for more than $700,000.  They flat out refuse.  This is why I feel the realtors are the problem….. what's more interesting is her home on Zillow has it worth $1,000,000 as well based solely on the stats, so there you go… but its Chicago, not Atlanta market, but still if Zillow says $1million based on the stats, why are all the realtors refusing to sell it for that and no more than $700k… she's had two come to list it.  Its not listed yet!!!  GLENN – I would LOVE your opinion on this.

        • http://www.facebook.com/profile.php?id=727275754 Lani Rosales

          Automated valuations are often flawed and the companies providing them acknowledge as much, but the idea that Realtors are a conspiring network is nowhere near true- trust me, lots of Realtors hate each other in a local market and compete against each other and are happy to undercut each other, so it's not a network where they all get together over coffee and talk about how stupid consumers are and how they should fix prices.

          What you're saying though is completely valid- you feel the deck is stacked against you and it's totally unfair that an appraisal doesn't match a sales reality. I recently got my wedding ring appraised for insurance purposes and asked my jeweler friend what it would sell for on the current market and the difference was over $12,000. I had no intention of putting it on the market, but I felt like I had been wronged because of the distinct difference between appraisal and sales reality.

          • PB

            We all know that the appraisal represents neither a completely objective nor binding price for a home.  It's nothing more than what the appraiser believes it is worth.  The only price that matters is the price that someone will pay for it.  It's no secret that realtors have some influence on the price but their job is not to set prices; it's to sell homes.  Based on the compensation structure for realtors, their incentive is not to list a home at a price that won't sell but at the highest price they believe it will sell.  Thus they advise the seller on what they believe the market will bear, not what the home is intrinsically “worth”.  In some cases that may be considerably more or less than what it appraises for, depending on a host of possible factors.  Case in point, I live in DC and I have the opposite problem.  I was looking to refinance and the appraisal on my home was almost $50,000 less than what zillow et al. and a realtor friend of mine who knows the local market very well would list it at.

          • http://www.facebook.com/profile.php?id=727275754 Lani Rosales

            You and I are SO on the exact same page, saying the same thing, buddy! :)

        • Lafuentehoa-vp

          Dgisby said: “never mind the lot sizes are no where near the same, and the quality and details inside the house are not taken into account.”

          In this market, a large lot is like a pool: buyers either want it or don't, but they are not going to pay you extra for it.  Look around the edges of town at all the vacant lots sitting with no construction activity: land has no value in the current market.  As for the lifestyle of a large lot: what some see as additional privacy, most see as too much work to maintain.

          Similarly, your 'tasteful upgrades' may be nice for the one buyer who shares your tastes, but the rest of the market will give you $0 for them.

          Same with views, golf access, and many other features: in this market they command little value.

    • http://pulse.yahoo.com/_6O4REOVO6HZR2L7HFPAN5OHB3I AMERICAN

      Something in your neighborhood sells for less affects the entire neighborhood.  One thing property values were way, way overpriced during the rock and roll days.  That is what caused the crash which brought down the entire economy.   High unemployment, lower wages, lending practices starting to act sane and stop approving these overpriced properties, etc, is the name of the new and realistic real estate game of today and the future.  The dream/nightmare days are over.  You can hold out and hope for the same insanity as long as you wish, but the crazy up, up, up and away fraudulent real estate days of insanity are over.

  • http://www.maggiehomefinder.com Maggie, REALTOR

    I am an optimist! Lately the buyers are coming out and they are getting serious here in Los Angeles. I see first hand the multiple offers for anything halfway decent UNDER $300K in Southern California. True, I concur that the banks are not going to open the flood gates to more foreclosures…I've long held the view that it's far better to do a short sale and sell a home that is still occupied rather than a house that is left vacant without “life” in it.

    The key is to watch the jobs market, we need to create new jobs at a record pace. What boggles my mind is that we are all waiting for someone else to do something…we need to take ownership for our own future. It's a great time to be buying a home with the interest rates at unbelievable lows. For instance, I have investors buying houses for $150,000 and renting them out for $1500 per month! Their total expenses are $650! That's unreal cashflow! This is real and happening in Los Angeles.

    Let's not dwell on what has been and place bets on what may or may not happen. In my Redfin world, and I thank God for my beautiful Redfin savvy clients, it's an amazing and great time to be a homebuyer in Los Angeles!

    • Pete Tomaszek

      Good gob Maggie, 
      Here in San Diego we are seeing the same thing. Tons of flips. Also I see an a ton of Bad houses. The inventory is filled with neglected houses, that really only need paint,flooring and landscape maintnance. They are skipped over by client because of the work involved. When really then can be cleaned up very cheap. The savy buyers are seeing this, and pouncing on these. 
      True we might not have seen the bottom but my 2 cents says we have been on it for some time now.

      • Guest

        Here in San Diego, apparently most condo complexes with FHA financing were deleted yesterday. Another new
        rule. Almost everything will have to be resubmitted to Fannie Mae for approval. It will be extremely hard to get HOA's to
        cooperate with the terms to get Fannie Mae/FHA approval. It was suggested to go
        single family.

    • http://pulse.yahoo.com/_6O4REOVO6HZR2L7HFPAN5OHB3I AMERICAN

      Hey Maggie, where are those livable $150,000 houses for sale in a decent neighborhood?  I could be game if you tell me where those wonderful buys are.

      • Burbank_dude

        She's talking trash like other realtors and greedy owners. In LA (I live in Burbank) there still is nothing under 300k that isn't in an ghetto and over 60 years old. Best example is NOHO where single family homes are lived in by multi families and selling up to 1/2 million on low volume. The streets are filthy, there's a alot of crime and other service problems. It's a scam now that folks are paying over 300k to live there!

        Keep dreaming that we've hit the bottom. When we do hit bottom, prices in the ghettos will be in the 150 range where it belongs. And to the folks with homes touting their paper value, take it to market and see what kind of offers you get! That's reality.

        Sure, a sucker is born every minute so hold out, maybe one of them will give you your appraised value.

  • G9visari

    Your charts for the past 2 years (2009-2011) are mis-leading because that time frame included Gov't subsidies, aka first time home buyer stimulus.  The 2007-2009 charts show the true market.  If the Gov't does not meddle in the Real Estate market going forward, I think it is likely to get ugly again.  My 2 cents.

    • The_Tim

      I agree that the Govt. meddling screwed around with the market, but some markets (specifically SoCal) were starting to show signs of stabilization even before the tax credit came along and gave a temporary boost to prices everywhere.  See this post on our San Diego blog about the December 2008 Case-Shiller data.

      • G9visari

        If that were the case, then why is San Diego (for example) down 4.1% compared to last year?  And last year includes Gov't stimulus till April 2010 and partial stimulus b/c the closing deadline was extended Sept 2010.  So there was a 4.1 drop YoY even with Gov't stimulus.  It is just going to drop further by this time next year if the Gov't doesn't get involved again.  Should be interesting for sure.

        • The_Tim

          Easy.  As I said, the government meddling totally messed with the market.  IMO, San Diego was on track to hit the bottom and flat-line for a while.  Then the tax credit came along and boosted prices 14% off their April 2009 lows.  If April 2009 was on track to be the bottom that prices bounced along for a while, then it stands to reason that once the government support is removed prices will naturally return back to that bottom and bounce along as previously scheduled.  So far they're back down to 6.5% above their April 2009 low point, so I wouldn't be surprised to see San Diego give up about that much more before flat-lining.

          • G9visari

            Ah yes but in April 2009 there were more employed people compared to today (in San Diego).  Also, most corrections tend to undershoot, so the likelihood  of a soft landing to 2009 lows is pretty remote IMO.  For the most part I agree with what you have said – I just don't think there will be a soft landing to 2009 lows.  I think it will get much more uglier before it gets better.

    • Alexio

      I don't think the Gov can intervene this time. It just doesn't have the money for it.

  • brokerman

    Jobs jobs jobs
    We need greed  to kick in to help motivate buyers into owning.
    You know….greedy landlords seeing rent to up up up and then…
    Pretty soon buyers get tired of the rent  increases,  save enough and they become
    greedy landlords:) better yet  happy above-water smart investors!
    Broker since 1998 and agent since1973 age 19 pappa was a Broker I'm a son of a B:)

  • http://twitter.com/Mauibilly Billy Jalbert

    Glenn – I love that you guys dare to speak the truth as you see it.  Yes you will get pelted with stones, tomatoes, potatoes, invective and whatever else people will hurl at real estate practitioners but we know that comes with the territory.  “Where the hell this is all going?” is a great question.  Our market is bizarre.  We don't behave like the rest of the nation because, we're not.  We're a resort market that is very disconnected from reality physically and otherwise.  Things I do know:  1.  It's still damn hard to get a loan.  Over 50% of our YTD transactions in Maui County have been cash.  2.  The extremely affluent for the most part seem to feel better than they did 2 years ago and are buying premium properties again. 3.  As long as the dollar stays low we'll continue to see a steady stream of international buyers in our market. 4.  It sure seems like it's going to be a bumpy ride with some months looking and feeling good and others the opposite.  What a long strange trip this is :-)

  • Gail5750

    The answer lies in Will Roger's quote – Buy land, they ain't making anymore of it.

    It's supply and demand. Construction has practically stopped, but people are still getting married and having babies.  They need places to live but supply isn't keeping up with the demand.

    The wealthy are taking advantage of this slump and buying with all cash if necessary.  They know this is the time to grab the bargains.

    The middle-class needs a break on loans.  Requirements are too stringent right now.  The banks needed to tighten up, but not like this.  The problem was ARM loans.  Many people didn't understand what they were getting into.  Those loans needed massive restructuring. 

    Fixed loans don't need the superman credit scores or tons of paperwork that are required now.  There are many solid loans out there that were done with minimum documentation or not so perfect credit scores.  Tax returns and credit scores don't tell the whole story.  Buyers don't want to lose their 20% down.

    Banks should be required to ease up on middle-class families and allow them to buy up these bargains too.

    .

    • http://blog.redfin.com GlennKelman

      We have definitely noticed more cash investors Gail…

  • jamesv

    The 2009-2011 charts are misleading, in that Federal tax subsidies and credits juiced the results for home prices during that time.  I believe home prices are headed down another 10% over the next 2 years.  Of course, I could be wrong, but I doubt it.  From where I sit, the factors that contribute to steady/higher home prices are lacking, and the headwinds are strong.  Glenn, I appreciate the transparency that Redfin brings to the house-buying process.  However, I think this is one post for which Redfin will have to eat its words.

    • http://blog.redfin.com GlennKelman

      Appreciate your thoughtful perspective JamesV. I think it's entirely possible that prices will drop 10% over the next two years. We have argued that the second dip won't be very steep. Given that some markets lost 25% in one year, a 5% year-over-year drop doesn't seem so calamitous. I was reacting mostly to the argument Zillow made that the markets would drop nearly another 10% in the months remaining in this year.

    • Forevrstrong 18

      current stats put it as  40% medium drop in property prices since 2007. yr. feeling that it will DROP 10% over the next 2 years—making the total drop in excess of 60%. did u based your assumption on past evidence and yr gut told u that the market will keep dropping until………. unemployment is back down to 5/6% n stock market is up to 13000/15000 points and value of us$ is appreciating 5/10%against yen/euro and price of oil is $60.00 a barrel. I bet u that prices will appreciate in 18 months and will keep appreciating and will catch up to 2007 level in 3/4 years. how–gut feeling…. all abt. feeling and past historical stats which always prove WRONG.

  • BeyondelementalsCPA

    I love how real estate agents are still pumping the masses (it’s a great time to buy in LA)…why would that be? When you can rent for far less than a mortgage payment (not considering property tax and upkeep).  There is nothing magical about home “ownership” in a stagnant market.  You need at least 1% annual appreciation consistently to justify locking in the sizeable amounts of capital required to purchase any decent home in the LA area.  Why does no one compare rental costs with ownership costs?  In most urban centers we are way off…

    • http://blog.redfin.com GlennKelman

      There is in fact a good comparison here: http://www.calculatedriskblog….

      • BeyondelementalsCPA

        Thanks Glenn~ Good link to article as it relates to the whole US, I was referencing specifically LA metro, but this article still states “prices are too high”.

  • CitizenPete

    Nice spin Glenn.  But it ain't over.  The shadow inventory is a bigger factor than you care to admit.  And then there is the regulatory pressure tightening the qualification requirements for new mortgage loans.  Got 20% to put down?  Less than that is going to get you a lot of nothing for options.  Banks will not be happy to retain 5% of the risk on a loan with more than 80% LTV.  Why?  That loan will stay on the books even after it is sold, tying up capital… stupid accounting rule… yes….  but that is the way it is.  The fat lady isn't even in the wings.

    • http://blog.redfin.com GlennKelman

      I love the tough talk Pete! I really do. And I worry about lending guidelines becoming stricter. But at least make a call. How far will Case-Shiller prices drop in the 20-city index, from the March to December?

      • Silver_brain

        I think prices will drop atleast 20-30% from here on. Price-to-rent ratios are still out of whack in almost all cities. And there are no more idiot knife-catchers left (they all took the stupid govt. bait (first-time homebuyer credit)). The people that are left are smart ones like me who know where prices should be and so will wait until we get to that point.

      • Gforce_hater

        “But at least make a call. How far will Case-Shiller prices drop in the 20-city index, from the March to December?”

        it's better to be ballpark accurate, then precisely wrong.

        there's enough data to make me to think prices will be down  Q12012 (compared to Q12011).
        i give it  67% chance(2/3) of getting it right.

        if i picked a percentage price decline i'd give less than 5%(1/20) of being right because i really have no idea how to predict the precise size of the decline.

        the directional prediction (with 67% odds) is enough reason for me to not buy.
        the price decline prediction(with 5% odds) is too uncertain for it to be of  any value to me or anyone else.

        people  should start with making predictions that are somewhat accurate (eg. directional prediction: is it up or down), instead of making predictions that are quite likely to be wrong(eg by how much will it decline).

        after all if you can't predict the direction accurately, you certainly won't be able to predict the size of the decline any better.

  • avonia

    Can you explain your 3rd to last paragraph? Are you saying prices will no drop? It's a little unclear.

    “Sure the whole economy is getting scary again and the stock market run ended a month ago; all heck could break loose in employment, government credit and consumer confidence. But when there are reluctant sellers, bidding wars, declining distressed inventory — and mortgage rates just now dropping to 4.55% — we just don’t see what else could drive a steep drop in prices. “

    • http://blog.redfin.com GlennKelman

      Good point Avonia, I wasn't clear in that paragraph. I was trying to say that we think only a major macro-economic catastrophe — a big spike in unemployment for example — could cause a steep drop in prices…

  • http://pulse.yahoo.com/_KZFXRUECDELLK6MUKMM454G374 Fernando

    Anyone know if work has been done to track correlations between the housing market and the presidential elections? We've hit our 'bottom' around the same time Obama took office.

    • http://blog.redfin.com GlennKelman

      I mostly hear about employment and U.S. elections; no president has been re-elected since FDR when unemployment was above 7%.

      • http://pulse.yahoo.com/_KZFXRUECDELLK6MUKMM454G374 Fernando

        Interesting, thanks Glenn.

      • Foto21 Antinet

        If republicans get back in, and apply their discredited wealth-concentration economic policies, get ready for an utter collapse of the economy, let alone house prices.

  • http://fedwatcher.myopenid.com/ fedwatcher

    It appears that in some areas the banks have gotten use to doing short sales, while in others they have not. Many of the low priced REOs continue to be picked up by investors, but as you go up in price they stick longer on the market or are constantly delisted and relisted. Then there are the boards that forbid Redfin from publishing certain information, which incourages this delist/relist behavior.

    I have also observed that many short sales in California get delisted, foreclosed, and then relisted close to what was asked durring the short sale. Could this be due to the high number of home equity loans or seconds?

    I have seen many properties in the areas I am interested in stick around for months and months. Others get snapped up or are delisted. It is a confusing picture. The “Talking Heads” are telling us it is the best time to buy with these low interest rates, however if and when interest rate rise there will be a short rise as fence-sitters jump in followed by a decline as cash-flow investers leave.

    For me, I plan on buying for cash and would welcome an upward spike in interst rates. The higher the better. Price to rent is the only true measure of value. All else is speculation.

    Ultimately the banks will have to unload their inventory, however they can drag it out because they want to or they can drag it out because they lack the staff and “documentation” to do it faster.

    It is a very confusing picture that causes some to say the bottom is in or almost in and others saying it is years away.

    Both camps have excellent arguments. But we will only know the bottom well after it passes.

    Matters not to me, as where to camp out is still a question and paying too much for the right 'where' is better than getting the best price on the wrong 'where'.

    • http://blog.redfin.com GlennKelman

      FYI, we track Days on Redfin so we know when a home is de-listed and re-listed…

  • Forevrstrong 18

    all the charts r historical n a mirror of wat had happened.  The market has not bottom? …define bottom! it may suprise u that the re-bound maybe two time sooner than u think. the hopelessness now is the right time to buy–here is blood in the street and I hope/predict/wish the market will be much worst before it gets better n it will. so for the gutsy buyers it is the right time to buy. btw, I bought a bank foreclosure and completed in 58 DAYS.

    • http://blog.redfin.com GlennKelman

      58 days to close! Wow.

  • Opinionated

    We are in a Depression. It will not end until government at all levels drastically reduces spending.

    Currently, the cost of government is literally sucking the life out of the private sector. The private sector is where productive jobs are created. Few seem to understand that by far most new jobs are created by start-up companies. Currently these are being aborted by govermnent borrowing in the credit markets.

    • http://blog.redfin.com GlennKelman

      Government spending is a long-term problem but hasn't had any immediate affect on entrepreneurs or start-ups; it is very, very easy for start-ups to sell equity to venture capitalists or to get debt financing. If the government has increased the cost of capital in the private sector, I can't tell.

      • Matt

        Interesting, I own a tech-based startup with much more sound business plan than many of them, haven't found an investor so far.

        I would 100% say it's not “very, very easy” to do so.

  • Gudenius

    Glenn, what do you think the impact will be of Fannie Mae lowering the jumbo loan limits in September? ( http://www.thestreet.com/story… )

    I really think that this will have an impact in places like the SF Bay Area where median home price is about 7-8 times median household income in most cities….  this is one reason I foresee values dropping. Maybe that reality won't set in by December, but I think that by February you will be seeing adjustments (downward) because of it.

  • Foreverstrong 18

    redfin is spot on abt. the current market in real time. if a hot property is listed for sale–knowledged buyers will bid for it and most times it is sold 10/15% higher than the asking price–in sfo bay areas as Hillsborough/burligame/millbrae/san bruno/sth sfo/sfo city–buyers are chasing good homes and they r not shackled by mortgage pre-approvals since they r most often able to pay CASH. The supply situation is bad–but good properties still have a market. wat needs change is banks' procedures to sell foreclosed properties at a faster pace–not 400 days. govt. should regulate banks to speed up sale of banks' foreclosed properties ; if not these houses/condos will take 10 years to go through the system.

    • http://blog.redfin.com GlennKelman

      I agree FE 18 that it would be better if the band-aid came off more quickly, but do we really want to force banks' hand?

  • Pat McGroin

    You might want to check the Case-Shiller charts all the way back to the nineties….to see exactly where house prices CAME FROM (and no, 2007 prices are not your “baseline,” lol). People (esp. those who make their living from the real estate market) tend to forget that home prices in most of the U.S. SKYROCKETED from 2000-2006….for no good reason (other than hype, delusion, easy money for anyone and downright fraud on the part of the entire FIRE sector…but, of course, these are not GOOD reasons).

  • xlr8

    Prices are still too damn high in good neighborhoods like Palo Alto, Los Altos, Foster City, etc. Price-to-rent ratio is approaching sane territory, but it is still significantly cheaper to rent then to buy in good neighborhoods. So prices would most likely continue dropping until it becomes cheaper to buy then to rent, at which point market will stabilize and possibly “recover”.

     With all the government interference in real estate, who knows if/when this will happen. Some say it might be till 2025 for the “recovery” in prices http://finance.fortune.cnn.com… housing bubble was/is just that – a period of “irrational exuberance”. “Everyone is buying, so should we”, many said. But from an investment point of view, buying your own house may not be the smartest investment decision. On average, housing might return a little above inflation after you are done paying your bank, maintenance, HOA, taxes, etc. Mortgage deduction is tiny in comparison to expenses of owning.  To protect your wealth (and preferably increase it) people should hold a diversified portfolio of assets (stocks, bonds, REITs, precious metals and possibly commodities). I know its not as sexy as making a fortune by flipping houses, or selling at the top of the Tech bubble, but it sure beats buying at the top of housing bubble or seeing your hard earned dollars evaporate because the dotcom you bought went under. If you must be in a real estate market, you can buy Real estate investment trusts (REITs) stock and pocket the dividends (3-7%). This way you can liquidate your holdings at a moment's notice without waiting for home inspections, pre-approvals, and gangsters, sorry I meant Realtors robbing you of additional 3-6% in fees, etc.
    Of course, as some smart person has said: “There is no bad assets, just bad prices”. If you can find a good home at a good price, it just might be a good investment, but as recent history has taught us, you can never be 100% sure of this.

    • Foto21 Antinet

      Lost Altos and Palo Alto are so overrated as places to live it's insane. Suburban blah is the name of the game, and hope you like driving, because you're over an hour from SF. The only reason to live there is proximity to Apple.

  • archerlane

    The first dip was FRAUD, the second dip is continuation of the fraud.
    The banks, mortgage brokers, real estate industry, and the government created it and are attempting to keep it going.

    You mentioned the shadow inventoryy, well the banks are letting only the over priced crap seep out first to keep their balance sheets up. There is a ton of distressed properties in preforeclosure, foreclosure, >90 days overdue mortgage payments in the pipe line. This pipeline will be flowing for years not months to come.

    In Orange county, prices are still in a bubble due to current owners overpaying and still fantasizing that real estate market prices will go back up.

    Real jobs returning , with income to support the current real estate price levels are needed  and I do not see that happening in months. That being said, price will continue to decline. We are at 2003 levels right now and will drop further in my opinion.

    For those who got in and got out at the peak, good move. For those who bought at the peak, good luck. For the real estate people that enabled this housing mess, you killed the golden goose.

    • http://blog.redfin.com GlennKelman

      Redfin didn't do much business during the boom, which mostly happened without us, so I don't have a dog in the fight, but I've noticed that everyone is greedy: not just brokers and banks, but buyers, lenders and investors too. There's plenty of blame to go around, so I tend to think human nature created the bubble, not one particular party.

      • archerlane

        Glen,
        Thanks for the personal reply. My response was not directed at Redfin. I like to
        call it as I see it.

         I am quite happy with your site and it has provided me with a good research and
        understanding of the California real estate market. The price history info that
        you provide was quite an eye opener for me and I agree with you that greed
        played a key role on both the buy and sell side.

        FHA financing is the next blow up coming in my opinion, just another version of
        sub prime, altA, Option ARM with a little more down payment.
        Regards

        Alan DeGracia

        ________________________________

  • Foto21 Antinet

    Most, or at least half, of the most desirable housing in this country, or at least the West Coast is owned by boomers, who are just now getting close to retirement, and who, statistically, have most of their retirement in their homes. Most of them were counting on a million for homes now worth 600k, and 600k for homes now worth 350k. Seattle is different than CA in that there are far more jobs, but Seattle is only barely back to its 2004 prices, not its 1999-2000 prices.

    The major question is are there enough young couples with tech jobs in their 20s and 30s to offset all this prime boomer stock that has to be liquidated, since boomers statistically don't have good retirement savings, and just lost a ton in the slowdown. A lot of them have been dragging the process out, waiting for a turnaround, and someone born in 1951 is only 60 today, so it's still early.

    Considering how few young people can afford or think that a house over 300k is doable, houses under that price that are desireable will continue to sell and quickly, but the charts always predicted that the higher end would decrease in price and shove everything down in value, and that process has only begun.  How much the foreign buyer effect, strong in CA, and decent economies in Seattle and SF, and people sticking close in to cities offsets all of this we will see.

    • http://blog.redfin.com GlennKelman

      Foto21, this is a really deep insight. Thank you for posting this; I love it.

  • Renting in Mass

    “We’re not lying scuzballs.” That's the first thing a lying scuzball would say… Kidding!

    The latest Case Shiller numbers don't include April, and I don't think they are weighted toward the most recent months (like CoreLogic). So maybe prices did start to buck up in April and you were kind of right ;)

    On the other hand, The CoreLogic number isn't seasonally adjusted, so an improvement in April probably isn't very meaningful…

  • greeble

    Well, here's my discovery:

    We tried to buy a short-sale home and keep our existing home as a
    rental, at least until the market improved.  Assuming a 75% occupancy
    rate (typical for single homes) we could easily cover both mortgages. 

    The bank said no.  They wouldn't give us any credit for the rental
    income, despite the prime location of our current home.  So we said,
    “Fine, we'll sell our current house in a bad market.  Just give us a
    bridge loan.  We know we easily qualify for the larger house.”  Again,
    we were told no, we needed to qualify for BOTH mortgages indefinitely,
    without allowance for rental income, on the assumption that our current
    house would take over a year to sell.

    We have perfect credit, an average size home in a very desirable
    neighborhood, >80th percentile income, no debt beyond our mortgage,
    and almost $100k to put down.  The only downside I see is that we have
    only 20% equity in our current home because of the market crash.

    We asked what we qualified for, and we were told a sum equivalent to the
    value of our current home.  In the last ten years my salary has
    doubled, my credit has gone from good to excellent, I paid off three
    loans, and the interest rates are over a point lower, BUT the best I can
    qualify for is the same house I'm already living in.

    We've got a chicken-and-egg problem, here.  The banks won't return to
    reasonable lending practices until the market improves, and the market
    CAN'T improve until the banks return to reasonable lending practices.

    • http://blog.redfin.com GlennKelman

      We hear this a lot…

  • Renting in Mass

    “The banks won't return to reasonable lending practices until the market improves, and the market
    CAN'T improve until the banks return to reasonable lending practices.”

    The problem is that the banks lending practices weren't reasonable ten years ago.

  • Renting in Mass

    The .7 uptick in April doesn't look very impressive on this chart ;)

    http://cr4re.com/charts/charts

  • Will

    Greeble,

    Your story is scary.  As a realtor, this is the kind of thing that keeps me up at night.  I wonder who the banks think will buy all their shadow inventory, when they won't lend to you in this situation.

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  • Pingback: How San Francisco Got Her Real Estate Groove Back (May 2011 Insider) | Redfin Bay Area Sweet Digs

  • krs

    I agree that the charts are misleading because of the tax credits.  In addition, I think the use of the term “bidding wars” feels like a fear tactic.  From reading and talking to people, its seems a more appropriate term would be “multiple offers.”  Also, the only evidence we've seen so far about multiple offers is antidotal.

    • http://blog.redfin.com GlennKelman

      I am not sure where we would get statistics about bidding wars, though we do track sale-to-list price ratios:
      http://blog.redfin.com/blog/20
      How do multiple offers, or a bidding war, for that matter create fear? Maybe I'll use the term multiple offers, but I don't quite see the difference between the two?

  • Brad Heavey

    Many valid points from each perspective view. The big picture in the real estate marketplace no matter where in the United States that marketplace might be, is dependent on job growth. Currently, job growth throughout most of the United States is at its lows for at least the last decade and maybe more. Maybe, in 2012 will start to see job growth increase and unemployment decrease but, there will still be a lag in the real estate marketplace because of the prolonged recession. People come to me all the time, and emphasize how difficult it has become to stay afloat due to the current economic conditions. One very prominent successful real estate company in San Diego County recently stated “this is the most difficult time I have seen in real estate in the last 20 years”. Jobs, jobs, jobs, we need more jobs.

    Brad Heavey is a certified real estate appraiser and expert witness in San Diego
    http://bradheaveyrealestateapp

    • Grumpy67kachina

      BANKS NEED TO START USING REPLACEMENT COST INSTEAD OF THEIR OWN DISTRESSED COMPS AS THE BASE VALUE OF HOMES. THIS WOULD BRING SOME EQUITY BACK TO OVER 50% OF THE HOMES THAT ARE NOW UNDERWATER

      GRUMPY

    • Grumpy67kachina

      ONCE YOU PUT A FLOOR VALUE UNDER THE HOUSING MARKET BY USING REPLACEMENT COST AS A BASE PRICE. THEN NEW CONSTRUCTION CAN COMPETE WITH THE REPO MARKET PRICES AND THAT WILL BRING SOME CONFIDENCE BACK TO THE CONSTRUCTION BUSINESS. THAT WILL SLOWLY BRING JOBS BACK TO THE LARGEST BUSINESS THAT HAS BEEN HURT IN THE LAST FEW YEARS. BUYERS THAT ARE NOW WAITING FOR THE MARKET TO HIT BOTTOM WILL SEE THE BOTTOM IS THE COST OF BUILDING IN THEIR CITY. THIS WILL BRING THE FREE MARKET BACK INTO PLAY AND IF ONE CITY LOWERS IMPACT FEES TO LOWER COST FROM $120.00 A SQ.FT. TO SAY $100.00 A SQ. FT. THEN THEY CAN GROW A BIGGER PROPERTY TAX BASE FOR BETTER SCHOOLS ECT ECT.

    • Grumpy67kachina

      USING THE COST OF BUILDING AS THE BASE LOAN VALUE THEN ADDING IN LOCATION, LOCATION TO INCREASE THAT BASE VALUE. THIS WILL ALSO BRING THE FREE MARKET BACK INTO PLAY FOR THE BUILDERS. THEN WE WILL SEE WHO CAN BUILD THE BEST HOUSE, FOR THE BEST PRICE, IN THE BEST AREA THAT THE BUYERS CAN AFFORD. BEFORE THE PRICES CAN MOVE UP WE HAVE TO STOP THE BANKS FROM USING THEIR OWN DISTRESSED OWNERSHIP AND REPO SALE PRICES TO VALUE THE OTHER HOME LOAN VALUES IN THE AREA!!! THIS IS A MAJOR WAY TO BRING JOBS BACK TO THE AREA SENSE HOME BUILDING IS A MAJOR JOB PRODUCER IN MOST OF THIS COUNTRY. THE BANKS WILL START LENDING ONCE THEY CAN ALSO SEE THE FLOOR OR BOTTOM OF THE MARKET.

    • http://blog.redfin.com GlennKelman

      Job growth is exactly what I worry about Brad. Excellent point.

  • http://twitter.com/JessiDarko Jessica Darko

    Your lack of understanding of real estate is only exceeded by your lack of understanding of economics.  I'm going to enjoy watching redfin implode.

    • http://blog.redfin.com GlennKelman

      Jessica, we'd love to you point out the error of our ways… what's your specific beef?
      As for Redfin's implosion, we're still growing through good times and bad, but we never stop worrying about how we'll keep it up…

  • Rmnp

    Everything you say rings true. My experience in shopping for my retirement home is frustrating here in orange county ca. I decided it was a good time to buy, so we borrowed enough cash to make offers in order to “get a good deal”. Unfortunately it’s not helping at all since everything that comes on the market gets multiple cash offers and since we are not builders or flippers we lose every time. At least that’s the story I get from my realtor, that builders can afford to pay more because it costs them less to renovate.
    My great idea is 6 months into failure while I pay interest on a loan I don’t need yet.
    The prospect of finding what we are looking for just seems to be getting slimmer.
    P. S. The upside is I found one of the most knowledgeable, honest, and nicest realtors ever. Yeah for Cindy J.

  • Rmnp

    Everything you say rings true. My experience in shopping for my retirement home is frustrating here in orange county ca. I decided it was a good time to buy, so we borrowed enough cash to make offers in order to “get a good deal”. Unfortunately it's not helping at all since everything that comes on the market gets multiple cash offers and since we are not builders or flippers we lose every time. At least that's the story I get from my realtor, that builders can afford to pay more because it costs them less to renovate.
    My great idea is 6 months into failure while I pay interest on a loan I don't need yet.
    The prospect of finding what we are looking for just seems to be getting slimmer.
    P. S. The upside is I found one of the most knowledgeable, honest, and nicest realtors ever. Yeah for Cindy J.

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