What the Housing Market Has to Be Thankful for in 2012

Here is Redfin’s monthly email newsletter, with a little about Redfin and a lot about what’s happening in the real estate market.

Happy holidays!

We have a lot to be thankful for don’t we?

After everyone gave up hope, the housing market emerged from the basement for the first time in six years, and is now the life of the party, guzzling Rockstars and kissing old men.

As we predicted in The Atlantic last October, this is a big reason the economy will get better too.

A Recovery Is Becoming a Rally

Pending home sales just hit a five-year high. The number of underwater homeowners refinancing their loans will double this year. Housing starts in October were up 42% over last year.

The bottom in prices that we first predicted in February is safely behind us, with the numbers rising every month this year. By October, prices had increased 8.4% over 2011.

Case-Shiller 20 City Index

Homes Are Still Cheap

But homes are still cheap, hovering between 1999 and 2000 prices. In the last six years, the typical American home-buyer’s mortgage payment has dropped $358 to $889: enough to go out to dinner every night.

Redfin on the Rampage

And Redfin is growing very fast. Redfin agents just hit a big milestone, with $100 million in fees refunded to our customers, based on $8 billion in home sales, with 97% customer satisfaction.

The number of people who sold a home through a Redfin agent doubled this year, mostly because we began promoting our listings through our website and our top-rated mobile tools. A Redfin listing gets double the traffic on Redfin.com that other listings do.

And our traffic set new records too. National TV and newspaper stories published the results of a Redfin study showing we have 20% more agent-listed properties than national portals like Trulia or Zillow, and that we get listings a week sooner.

2013 Predictions

This is why we’re hiring another 200 agents over the next few months, so our service should get much more local. It’s a big bet but we also see plenty of signs in the overall market that change is coming:

  • Wake-up call: the builders we’re talking to now are promising a January 1 price increase.
  • Spring thaw: we told would-be sellers this year to wait for higher prices. No one will say that in 2013, which will be the first year in seven starting with a broad consensus that prices will rise. After 18 months of fewer and fewer homes for sale, the trend will reverse.
  • Move-up buyers: when people can sell their home, they can buy a bigger one. After five years of a market led by first-time buyers, demand will shift up-market, particularly now that government financing for first-time buyers is at risk.
  • Move-down buyers: boomers who spent the last five years in an empty nest will finally sell.
  • Jumping the bridge: more buyers are looking across the tracks because prices are rising.
  • Exurbs: after years of small, in-city projects, builders are moving back to the edge of town, having run out of any other land to buy.
  • Flips: more folks are putting money into homes before selling. Architect billings are at a two-year high.
  • Foreclosures: will only spike if the U.S. starts taxing forgiven mortgage debt in January. Without a tax-break extension, any time a bank forgives debt, the homeowner pays the tax on it. Most owners will just wait for a foreclosure instead. This is a bigger threat to U.S. housing than the mortgage interest deduction.
  • Lower fees: as fear dissipates, commissions will decline, after rising 8% since 2005. And it’s about time: half a billion dollars has been invested in real estate technology since then.
  • Irrational exuberance: some folks will bet on a bigger recovery than the market can bear. Things will keep getting better, but not like 2005.

And if mortgage interest rates show any signs of rising near the end of the year, the market is going to freak out, like kids at a birthday bash that ran out of cake.

We’ve forgotten what it feels like to pay 5%.

What do you think will happen in 2013? Make your call in the comments section below! Or, if you need advice from Redfin, don’t hesitate to ask.

Happy holidays and thanks for your support!

Glenn Kelman | CEO, Redfin

Twitter | Blog

Discussion

  • http://teardowns.com/ Brian Hickey

    Glenn,

    As you know, housing got us in the mess and it will have to be a major contributor for getting us out. IMO, and I think it’s something you share, new construction will be a primary driver for the whole economic recovery.

    We believe the focus of this new construction starts and ends with the redevelopment of existing residential and commercial structures. Heading out into green space and speculation in far-out communities just might work against the progress we’re experiencing now.

    Our prediction for 2013 – infill (the redevelopment of established communities), will be at the core of this next rejuvenation in housing.

    Good luck to Refin in 2013!

    Disclaimer: Our opinion is self-serving :)

    • http://blog.redfin.com/ GlennKelman

      I agree that infill has been the dominant trend Brian, but do you think it can continue?

      • http://teardowns.com/ Brian Hickey

        Seems that (re) development, starting with prairies and farms to clusters of metro and suburban markets is an ongoing trend – just take a look at any historic photo of Seattle (as an example) – then look at one taken every 4/5 years, chances are you’ll see change, and that change in most cases consists of replacing old with new (land becomes a farm, the farm becomes a community, the community becomes established, then the housing and commercial stock gets old, then it’s either replaced, upgraded or buyers move out to green space – round and round we go).

        Additionally, the current housing stock was never built to last forever in the first place. While some may have historic significance, most needs some kind of serious renovation along the way to stay current. Also, buyer preferences have changed. There are simply too many new technologies, materials, design and demand for new to slow the process and IMO, and as I said – building out is not “in” :)

        Will it continue? Just drive around and look at the housing stock, in many communities it’s either just getting started or has yet to begin. The downturn in prices has only made the trend more economically feasible.

        All that said, the best place to get the right answer to your question is with the home buyer or sellers themselves. Maybe ask your agents (of course the market matters – not every community is currently actively replacing their housing stock – but any major metro or suburban market should suffice) to ask their customer sellers – “is the value of your real estate in the land”? There’s no need to ask the buyers – if buyers are driving around in new cars – they want new houses :)

        I’ll stop now – thanks for the follow-up and good luck to Redfin; you have a real opportunity to dominate, consumers want a fair and equitable transaction and you guys can give them one………..

      • http://teardowns.com/ Brian Hickey

        Glenn,

        I wrote a nice long-winded response to your question – but don’t see it up here – hopefully it’s in the approval process……..?

      • http://teardowns.com/ Brian Hickey

        Looks like I may have pressed a bad button…..? I’ll redo my response, but it probably won’t be as colorful as the first….

        (Re) development has been a part of our culture since time began. Prairies became farms, farms became communities, communities became clusters, birthing city and suburban living (and working) space.

        Take a look at any historic photo of Seattle, and then look at subsequent photos every 4/5 years – the landscape changes and most of the change consists of replacing old structures with new.

        The trend is being fueled again by an economic recovery and lower prices. Additionally, buyer preferences have changed. Most modern technologies, materials and design can only be obtained via new construction and bearing moving out into green space without an established infrastructure (schools, utilities, fire/police, community and town center etc.) the only option is to replace older stock by building new or renovating the old.

        But, the best answer will come from your customers and clients. Just have your agents ask the question (clearly not all communities are currently active with redevelopment but any major metro and/or its close-in suburban markets will suffice) – “is the value of your real estate in the land?”, “is your property a candidate for redevelopment?” – the sellers usually have an idea of the answer. As far as buyers…..if people are driving around in new cars……they are buyers of new houses :)

        If you find my previous response – just delete this one (it’s not as good as the first one).

        Good luck to Redfin……you have a great opportunity to dominate. In our experience buyers and sellers want simple, efficient and effective solutions for their real estate transaction and Redfin is well on its way to making that proposition a reality.

  • Greg

    I agree with Redfin’s market predictions. However, one of the potential drags on the number of listings will be the impending 25% increase to the capital gains tax. People who have refinanced down to the low to mid 3′s for a 30 year, and the mid to high 2′s for a 15 year, will think twice about giving up that payment.

    This could be another positive for the increase in real estate values.

  • http://redfin.com/ Eric Gideon

    Sorry for the delay, Brian – your comment got flagged as a false positive and wound up stuck in the queue! Let me know if you’d prefer to keep the original response or your replacement.

    Also, I’ve whitelisted you in Disqus so your comments will jump the queue next time!

    • http://teardowns.com/ Brian Hickey

      Thanks Eric……can you take down my second response? Too much of me is too much…….

  • Robert O’Donnell

    Hi Glen,

    There is a force that seems giant to me that I have never seen discussed in any media outlets. Fannie Mae and Freddie Mac are selling thousands of homes every month to first time homebuyers . HUD is simultaneously giving them loans with as little as $100 down or as much as 3% down payment. With such a tiny amount of money invested in a house, those so called owners are really renters. If the price of houses go up, the owners might take care of the homes. If they go down, they will have no vested interest to take care of the houses. Therefore, the taxpayers are taking on enormous risk and are now the explicit mortgage holders to hundreds of thousands of homes. Why is this never discussed? Please quantify how many houses have been sold under these programs and use your resources to bring this issue to light.

  • http://twitter.com/MatthewGudenius Matthew Gudenius

    Based on the charts I have seen and the fact that I see no demonstrable and sustainable vehicle for job or wage growth, I think 2013 will be pretty stagnant, followed by a downturn (especially for real estate) in 2014.

    It will look a lot like Wall Street lately. A little up, a little down, but mostly just flat and not doing anything.

    That’s my prediction. It’s not based on irrational exuberance, but on factual statistics and trend cycles (for example, during the last several recession periods, house prices actually ROSE during the recession. They only collapsed at the END of each recession period. In other words, real estate is a lagging indicator.)

  • Julie S. Jacobson

    If I could add a further prediction:

    - More & continued legislative funding of green incentives/rebates to consumers from state & local governments for efficient home items/upgrades

    - More buyers asking for energy/water efficient features in homes to keep their home ownership operating costs down
    - More new home builders integrating sustainable features into new inventory or adaptive re-use properties either as dictated by building code or by consumer demand (or both)

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