It’s Not a Monster Truck Rally, It’s A Real Estate Market

Big news Redfinnians!

Redfin just raised $15 million, mostly on the strength of nice revenue growth and very, very happy customers. Since launching our service with one Seattle real estate agent in 2006, we’ve closed about $6 billion in home sales, with a customer satisfaction rate of 97%. Consumers have saved $85 million in commissions. The value of the company has increased a hundred-fold. Woo-hoo!

That’s the view from on-high but Redfin is also taking it to the streets, running new neighborhood-level meet-ups with appraisers and inspectors to teach you how to assess what a home is really worth, and where to look for hidden problems in its construction. Redfin agents run the show at these events, so it’s an easy, no-pressure way to meet those folks too.

Take Cheap Money. Add Frantic Banks. Stir…

But enough about us. What’s new in the real estate world? A lot of weird stuff. We’re seeing second mortgages coming back for the first time in five years. We’re seeing homes prices drop so low — to $40,000 or $50,000 — that agents and lenders don’t want to work on ‘em.

We see non-recourse states like California — where borrowers can walk away from their house without being sued — working through distressed inventory faster, which tells us they’ll bottom out sooner. In places like Vegas and Phoenix, we see short sales getting approved in seven days, not seven months.

The Leaves Began to Fall. Demand Didn’t

In our own business, customers writing offers picked up sharply in mid-October, right after rates dropped below 4%. This was the first time in years we saw buyers respond to lower interest rates.

Then last week, our business slid back a bit, and will probably keep moving south for the rest of the year. November’s always risky because of the holidays but there was enough activity in October that we’ll probably see a lot of Thanksgiving closings.

Across the U.S., sales volume dropped 3% in September, but was up 11% from last year, when the market was sleeping off a tax-credit hangover. Investors accounted for fewer sales because they couldn’t find as many deals. Foreclosures have been down for a year, and still the Shadow Whisperers insist that a big wave of distressed inventory is about to wreck the market again.

Worried About Shadow Inventory? Turn on the Lights

I used to be one of those people but here’s what changed: we worried about 2006 mortgages with expiring teaser rates, only to learn that the new rates are lower than the teaser. We worried about banks flooding the markets with foreclosures after the robo-signing scandal, but their real strategy seems to be trickling it out, just so they don’t drown themselves.

This means that distressed inventory’s impact isn’t so much to lower prices as to prevent them from rising for many, many years. Whenever a seller tries to get more money, the bank will foreclose on a home down the street, undercutting his efforts. I believe the banks will be doing this not just in 2012 but in 2013, 2014.

And Home Prices Are Flat or Down or Up

The latest indexes reflect this reality. For the fifth straight month, home prices are flat: up .2% in absolute terms but really flat once you account for summer-time surges. Prices dropped 4% last winter because the government stimulus expired but nothing much has moved prices since:
Case Shiller West
The East and Midwest have been even more stable:
Case Shiller East

Adjusting for inflation, prices are at 1999 and 2000 levels and the ratio of home prices to rents are at 2000 levels too. The fact that rents are stable or rising in most cities has begun to put a floor on how far entry-level home prices can fall, barring complete economic Armageddon.

The New Normal Is Just Normal

And as the President of the Federal Reserve Bank of New York noted on Tuesday, America doesn’t really need prices to rise; would-be home-buyers just have to believe that prices have stopped dropping to get on with moving up or moving out.

For consumers this is all a bit like Scream 4: at some point you get tired of being scared and then you’re just bored.

And when you’re bored you can make rational decisions. If you need to move you will, without feeling like a sucker. If you want to flip a home for twice its value, you’ll just lose money. There won’t be another panic anytime soon and there won’t be another frenzy either. That’s a good thing.

Thanks for your support!

Best, Glenn


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  • Renting in Mass

    Thanks as usual Glenn.

    Are short sales getting any faster in Massachusetts?

    • GlennKelman

      Not that we've seen RiM!

  • Fred R.

    The flatness of the market is giving us all time to sober up (as if 3 years is not long enough).  Gone are the days when you could refi to pay for a deck or a new bass boat.  Mortgages are closer to the value of our homes, and collectively, we're farther away from a bubble.

    • GlennKelman

      I hope so Fred. Good comment!

  • Ken Brand

    Nice report.  Thanks.

  • Patrick L

    When are you guys going to get to Albuquerque, NM?

    • mattgoyer

      Sorry, no plans yet. However, you can signup to be notified when we do:

    • GlennKelman

      I would love to go to NM, but we don't have any immediate plans Patrick…

  • ArmandoA

    As always, another well written update.  Congrats on the business success.

  • Marta Walsh

    Boring is the new normal in real estate. Seems more sensible.


    has anyone had any thots about directly contacting the “investor” on our Wamu/Chase loan and seeking to cut a deal to keep the house but drop the overage late fees etc and REDUCE THE PRINCIPAL?

    • GlennKelman

      That sounds like a better outcome than a default, to me…

  • Sharon Goetz

    Is it my eyes? The first and second graphs–ostensibly West followed by Midwest + East–look the same; both are labeled West. It'd be great to see the Midwest + East numbers charted. Thanks!

    • mattgoyer

      Sorry about that! Should be all fixed now.

  • Samir

    Congrats on the funding round, Glenn and team.  Keep on disrupting this industry!

  • smayf

    Enjoyed your articles as usual.  Like the fact that it is down to earth, simple, stick to the fact and no fluff.  Thanks.

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  • Issyras

    Do you know if the banks would consider a loan to a retired mother and 30 yr. son puchasing as a pair?   I'm starting to get interested in this kind of an investment…mostly for the benefit of my son with a low salary.

    • GlennKelman

      I've heard about a lot more co-signed loans so maybe!

  • Danstvguy

    I like reading your articles but I have been noticing your ever increasing “bearish” attitude on your part which I consider bullish for long-term real estate investors.

    But I feel that once the light goes on and the public perception is that prices have stopped falling there will be a price correction somewhere around 10 percent … and then, perhaps, the 2-3 years of price stagnation you mention.  Remember that homes prices today are skewed with replacement costs …. some degree of normalization needs to occur here.

    That said … I'm not sure we're at the “bottom” although the charts seem to confirm this … 

    This is a long term problem and the issue that trumps your analysis is job growth and confidence … People should begin to perceive homes as cheap when the perception is that they won't keep going down in price.  Don't forget that 2012 is an election year and another year of flat prices will hardly help Obama's chances.

    As a new (part time)  R.E. agent though I hope you're right …. 3 more years of declining sales should setup a pretty healthy re-bound about the time I want to go full time.

    Dan Milbourne

    • GlennKelman

      I agree Dan absolutely that employment and consumer confidence are the overwhelming factors. Tim Ellis at Redfin is always reminding me of that and he's right…

  • archerlane

    Shadow inventory, banks are still sitting on this inventory,  not to prevent drowning but to keep them from hitting their bottom line. They are not in a hurry to put property on the market at at 30-40% loss

    Besides, who give a dam about banks drowning, may be real estate people. Asked the common guy who got screwed over with an overvalued homwe and is underwater by 25%.

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