Strange Days: Real Estate Enters the Twilight Zone (April 2012 Roundup)

Howdy Redfinnians!

Here’s our monthly round-up of everything that moved in the U.S. real estate market!

But first the Redfin news… Do you remember in Gladiator, when Russell Crowe says “on my signal, unleash hell?” That’s what Redfin did last month, launching:

Watch Our Real Estate Video

And we’ve got all sorts of performance metrics, too. Redfin compared its 2011 performance to the market average and found that we sold homes 15 days faster, and for $8,700 more money. And we just published numbers on Redfin Agent pay, which is well above the 85th percentile for full-time agents in almost every market we serve. We also shot a home-movie of Redfin customers and agents.

Now Entering the Twilight Zone

But what’s going on in the market? Prices went down, but we believe they’re now going up in lots of places. Sales volume slipped, but we think that’s because there’s nothing to buy. Every 300,000 years, the earth’s magnetic field flips, and lots of weird stuff happens then too. You want examples of weirdness in the housing market? You got it:

  • Multiple offers: 74% of Redfin’s March offers in Orange County, California faced competition. 51% in DC. Our clients are sending baby photos to sellers. We just published a six-step guide to winning a deal. Nationwide, Redfin’s offers increased 50% but its closings only increased 17%, so the competition has made us work a lot harder. Deals are getting stuck at the appraisal, because the price got bid up above the comparable properties used by the appraiser when trying to figure out if the home is worth loaning money for.
  • A tale of two markets: prices are mostly softer for condos and townhomes, and homes in the boonies and at the high-end. But entry-level and mid-range houses are getting devoured like cupcakes at a five-year-old’s birthday party. Builders are shifting toward small-lot, in-city developments with vintage materials — and big waiting lists.
  • Strange seasonality: one reason we saw lots of action early in the year was because this winter was so much warmer than last year’s. This made for better year-over-year comparisons: “It’s a dead-cat bounce!” exclaimed real estate freakazoid Nick Timiraos when I saw him Thursday. It also might mean demand came earlier in the year, like the cherry blossoms already lining the gutters, rather than actually increasing. Meanwhile, the number of homes for sale is down 27% from this time last year. At this rate, the summer-shopping season will be like a Soviet supermarket.
  • Canaries are coming back to the coal mine: the annoyingly smart people who sold homes in 2007 and rented for five years are now buying again. When we surveyed 1,000+ Redfin customers buying a home this year, a whopping 14% were people who had owned, rented and were now buying again. First-time investors are coming out of the woodwork, with Redfin real estate classes on how to evaluate income-generating properties filling up fast.

Case-Shiller Down for the 5th Straight Month. What Me Worry?

So that’s how it feels now. But what about the numbers? Well, nationally, prices are down 3.8%, and California has fallen more than 5%:

Market MoM Price Change YoY Price Change Date of Max Price Change from Max Price Prices Last at
This Level
Phoenix Real Estate 0.9% 1.3% Jun-06 -54.8% Apr-00
Los Angeles Real Estate -0.8% -5.4% Sep-06 -41.3% Jul-03
San Diego Real Estate -1.1% -5.3% Nov-05 -40.6% Aug-02
San Francisco Real Estate -2.5% -5.9% May-06 -42.5% Oct-00
Denver Real Estate -0.6% 0.2% Aug-06 -12.4% Apr-02
Washington DC Real Estate 0.7% -0.6% May-06 -28.2% Apr-04
Atlanta Real Estate -2.1% -14.8% Jul-07 -37.4% Jun-97
Chicago Real Estate -1.9% -6.6% Sep-06 -35.9% Dec-00
Boston Real Estate -0.4% -2.8% Sep-05 -18.9% Oct-02
Las Vegas Real Estate -0.5% -9.0% Aug-06 -61.6% May-96
New York City Real Estate -0.8% -2.9% Jun-06 -25.3% Nov-03
Portland Real Estate -2.1% -4.3% Jul-07 -30.3% Jul-04
Dallas Real Estate -0.4% -1.2% Jun-07 -10.9% Mar-02
Seattle Real Estate -0.7% -4.0% Jul-07 -32.4% Apr-04
20 City Index -0.8% -3.8% Jul-06 -34.4% Dec-02

Case-Shiller Index for January 2012, Not Seasonally Adjusted

Why is this old news? As Bill McBride noted last week in Calculated Risk, “some portion of the Case-Shiller index will be for contract prices six or even seven months ago… the key point is that the Case-Shiller index will not catch the inflection point for house prices until well after the event happens.”

Is the Inflection Point Here?

So the question is: has an inflection point arrived? But as we already predicted, the bottom is here. You can judge for yourself! Here’s what happening across the real estate market:

What About Interest Rates? Uh-Oh…

The monster under the bed is, as we said last month, interest rates. Pressure on rates has been building lately, despite the government’s insistence it’ll be able to keep rates low through 2014. The Wall Street Journal reported Monday that “investors have ramped up bets that a rise in the Fed’s key short-term interest rate, the federal funds rate, could come sooner.” For now rates are still just under 4%:

Interest Rates on 30-year Mortgages

I like the article’s conclusion: “No one really knows what will happen when the Fed takes the punchbowl away, after so many years of rock-bottom rates.”

It’s a mixed metaphor but isn’t that perfect for these topsy-turvy times? Strap on your miner’s helmet. Grab your punchbowl plastic cup, and a bowl of popcorn too. This summer is going to be a wild ride. Questions, comments, fire away in the comments section below. And thanks as always for using Redfin!

Best, Glenn
Glenn Kelman | CEO, Redfin


  • mdb749

    You funny guy, Glenn.  Thanks for keeping a little humor in an otherwise depressing market.  I love your website – it makes look like kindergarten fare.

  • Gforce

    glenn, i’m betting against you because:

    1a  multiple offers is an awful indication of price direction.
    1b  multiple offers is only useful to get buyers excited and induce them to buy houses (often to their detriment).
         because it’s so effective as a selling tool, mentioning multiple offers is a realtors favorite tool.
    2. price is a much better indication of price direction and price trend is strongly negative.
        as robert shiller, the co-creator of the case-shiller index has noted, RE prices have strong momentum.

    yes, the CS Index is delayed by 3 months, maybe as much as 6 months.
    doesn’t matter when the price trend has been negative for so long.

    the 20-city CS Index has been falling for more than 12 straight months(over a full year):
    the year-over-year numbers are not close to being positive.

    with the strong negative trend, prices should remain negative this year.

  • Manhattanscout

    Glenn, I totally love your writing style. It's amazing how you keep the reader entertained with a serious matter but still entertaining metaphors etc. 

    I'm quite surprised that the recession hit Dallas so mild. Is there any reason for it?

    • GlennKelman

      $5 gas?

      • Manhattanscout

        Don't get it

        • GlennKelman

          Texas has benefited from high gas prices because it is an oil-producing state and so employment has been good?

          • Manhattanscout

            That makes sense though I'm still surprised that it has such a big effect.

  • Notorious R.O.B.

    Glenn, good post, full of interesting data and insights.

    One question. Your buyer survey ( shows that only 2% of Redfin buyers are investors. The recently released NAR Survey shows that almost 30% of all purchases last year were to investors (1.23 m out of 4.01m). Is there some reason why Redfin has so few investor buyers compared to what appears to be the average?

  • Not Renting in Mass

    I enjoy these posts, but I could do without the selective horn tooting.

    • GlennKelman

      RiM, when did you become NRiM?
      And I know, I'm sorry about the horn-tooting. Are you talking about the “we called it” tooting on real estate prices or the “we shipped a lot of cool stuff” tooting? Or both?

      • Not Renting in Mass

        I bought a house in December.

        I was referring to the “we called it” tooting when you get a prediction right. You've made a lot of predictions. You got some right and you got some wrong, but you only point to the ones you got right.

        Feel free to do all the “we shipped a lot of cool stuff” tooting that you want. It's your blog!

  • Philip Soffer

    “On my signal, unleash hell.” I say that every chance I get. There's a little button on our app that lets me send emails to lots of people, and the engineer who coded it made the button say, “Unleash Spam.”

    • GlennKelman

      Careful with that button Phil…

  • Gforce

    i see the redfin moderators have filtered out my bearish, but substantiated view.

    • GlennKelman

      I am the moderator, and I can't find your comment. Can you re-post or email to glenn (at) redfin (dot) com and I will post?

  • Gforce

    Long comments require a captcha, then it says a moderator has to review before the comment becomes visible.

    • GlennKelman

      Yeah, I approved it, sorry 'bout that.

  • Peter

    What you are describing (a spring frenzy) is exactly what is happening here in red hot Austin, Texas.   Oh my, how the market has turned from just one Spring ago.   Rents are increasing significantly.    Plenty of new jobs and people.

    As to what happens when the Fed takes the punchball away.   That's an easy one.    However the whole bond/debt ponzi scheme will collapse and market forces will take center stage.   TPTB (bankers and their politician stooges) will resist it with all their might.

    • GlennKelman

      Great comment Peter…

  • Pingback: Want My House? First, Take My Poodle (May 2012 Roundup) | Redfin Corporate Blog

  • GlennKelman

    I found your comment and approved it Gforce! And I'm sorry it took a while to do so!
    Hasn't the C-S index “only” been falling for five straight months? The YoY numbers are indeed negative but our point is that what has happened doesn't necessarily keep on happening. Sometimes things change. We're betting that they change this year.

  • GlennKelman

    I don't know Notorious! We've wondered that ourselves. I think a lot of these guys have licenses of their own. Others want the agent to find the property for them. We're running classes for investors that are packed to the gills, so maybe the numbers will change?

  • Notorious R.O.B.

    It would be fascinating to track the changes. What I'm particularly interested in seeing is if the quality of investors change. That is, usually, by the time the retail “dumb money” investor gets heavily into a market, the professionals have all cashed out. See, e.g., dotcom bubble.

    And I'm interested to see if there's a price point at which the current crop of investors all exist the market, and allow the next wave to come in at higher prices.