One more little gift under the tree for you! Just in time for the holidays, we released Redfin for iPad!

Like a magnificent medieval triptych, the app has a three-in-one interface — a map, a kaleidoscope of listing photos, a single house in all its glory — all in one screen. The app shot to the front page of Apple’s App Store from the day of its debut.

One other sugar-plum feature for Redfin fans: we now offer a monthly home report that shows you pictures and prices for all the homes that sold in the four or five blocks around your place. To sign up, just search Redfin for your home address, view the property’s details, then click the big sign-up link.

Hope and Darkness

The holiday spirit seems to have affected more than Redfin’s elf-engineers. Prices fell again, and yet analysts and investors are daft with the holiday spirit, convinced that real estate may finally be ready to recover. Why on the darkest day of the year, are we always so hopeful?

One can only conclude that hopefulness is in our nature, and thank goodness it is! Let’s consider all the reasons this coming year will be better than the last.

Prices Down 1.2%

But first, that lump of coal! The latest numbers show prices fell 1.2%:

Case-Shiller Home Price Index for October 2011, Not Seasonally Adjusted

Three months ago, we said that price gains were just a summer fling. Sure enough, once you adjust for seasonal swings, the index is now at a new post-bubble low.

But hey, it could be worse: last October, experts predicted a 5% – 10% drop but in fact prices over the past year dropped only 3% – 4%. As we’ve been saying all along, we’re at a rocky bottom with a downward trend. The West is stable:

The East and Midwest, slightly less so, mostly because Atlanta fell off a cliff:

Sure, Call It a Comeback If You Like

Now our favorite housing swami, the studly Bill McBride at Calculated Risk, has said that most of the price declines are over. All week, the most-emailed story in the Wall Street Journal has been about the hedge funds now buying up residential real estate:

Big money is starting to wager on housing. Hedge funds run by Caxton Associates LP, SAC Capital Advisors LP, Avenue Capital and Blackstone Group LP have been buying housing-related investments, betting on a rebound. And formerly bearish research firm Zelman & Associates now predicts a housing pickup, as does Goldman Sachs Group Inc.

We aren’t surprised: all year, Wall Street has bombarded our site with web robots trying to download data in bulk. But the Street has been wrong before. As one analyst cautioned: “The smartest money in the world has been carried out on stretchers betting on a true recovery for housing.”

You Want Good News? We’ve Got Plenty

What has convinced some investors that the housing market will be nice instead of naughty? All sorts of good news:

• New construction is finally doing better, with inventory low, sales rising and confidence rising too.
• As we predicted last month, pending home sales hit a 19-month high.
• Actual closed home sales increased 4%.
• The number of homes on the market declined 18% over the past year.
• And to almost everyone’s surprise, foreclosure sales fell to a four-year low.

But don’t get cocky kid! Our own opinion is that home prices won’t fall or rise much in 2012. Prices can’t rise far before banks and regular home-owners put more properties on the market. And they can’t fall far because of increasing rents and — for now — declining foreclosures.

The Monster Under the Bed

The $24,000 question is: will foreclosures come back with a vengeance? Insiders warn that the backlog of foreclosed properties is “shockingly large,” a point no one disputes.

We worry about this, but less than others: the banks themselves don’t want to go back to 2008, when they ruined their own balance sheets by flooding the market with foreclosures at fire-sale prices. And many home-owners fretting about expiring teaser rates are discovering that the new rate is lower than the old one.

Rates Are Low, and May Stay That Way

So what I worry about is interest rates. How long can the whole economy hold together given the apocalyptic politics around U.S. budget deficits? Rates keep falling, now to 3.95%, and government lenders now expects rates to remain low at least through mid-2012.

Which brings us to our final prediction for 2012. If prices are low and relatively stable, and rates remain very low, sales will pick up. Just a guess. Or maybe a hope. Happy new year, and thanks for all your Redfin support!

Best, Glenn

Time for Redfin’s monthly tell-you-everything analysis of the real estate market! We just hit $5 billion in home sales, where Redfin’s agents represented either the buyer or the seller, all in our don’t-crowd-me-baby style. For every customer, deal or no deal, Redfin surveyed the customer and published the answer.

And on every home, we’ve paid our agents a bonus based on the survey result, not just a commission. Ninety-seven percent of our customers would recommend us to a friend. We’re so proud! Break out the Dom and the Dixie cups!

The Market Spends Another Day In Its Bathrobe, But Feeling Better

But enough bragging. How’s the market? It’s been sick so long no one has noticed it’s getting better. But it is! Sure September prices slipped, driven by the animal spirits of economic malaise. But consider:

• In May, economists predicted 2011 prices would fall another 7% – 9%. Redfin said prices would in fact stabilize. Since May, prices have actually increased 3%.
• For the whole year, prices are flat
• However weakly, sales are increasing
• The number of homes for sale is falling
• The number of foreclosures is falling

We don’t expect a miraculous recovery: prices will be low for years, and will probably weaken slightly in the remaining months of 2011. But being a little sick isn’t so bad. You watch TV. You fry an egg for lunch. You haven’t yet forgotten how terrible it was before, when you spent all night in the bathroom.

Welcome to residential real estate in late 2011. Let’s dig into the numbers shall we?

Prices Dip

September prices dipped .6%. On the bursting-bubble’s five-year birthday, Las Vegas homes prices now sit 60% off their peak.

What difference does the overall economy make? Well consider Dallas, where prices have fallen only 8%: $4-gas has been good to Texas.

For now, we seem to have arrived at the rocky bottom with a downward trend that Karl Case predicted in February:

In the East and Midwest, there may not even be a downward trend.

But the damage has been done. Adjusting for inflation, all appreciation in the ’00′s is gone.

The renters sure are laughing now! But perhaps they’re also finally getting ready to move. Rental vacancy rates just fell to their lowest level since 2006, and rents seem likely to keep rising, by 3% in 2012. The ratio of home prices to rents is at a five-year low, though still roughly 15% higher than historical averages.

One sign renters are buying: the proportion of Redfin customers who are first-time home-buyers has increased 18% in three months.

Home Sales Increase

What’s ahead? As we predicted last month, pending home sales in October increased 10.4% since September. Closed sales also increased. The increase was viewed with only meek enthusiasm by economists, since it was a rebound not a surge.

But we expect pending home sales in November to keep rising. The number of Redfin customers signing offers increased for three consecutive weeks in November before Thanksgiving. The November 30 Federal Reserve Beige Book reports that U.S. real estate activity increased, though not everywhere and not by much.

Not a clean bill of health by any means, but some improvement.

Inventory is Low

The reason Redfin’s been saying all year that prices don’t have far to drop was that there aren’t many homes for sale. A lot of homeowners owe too much on their mortgage to sell, and a lot more just don’t want to sell right now. Would you, if you didn’t have to?

Since the late 2007 peak, the number of homes for sale has declined 60%, a trend that continued this month. The laws of supply and demand are starting to do their work.

A Trickle, Not a Tidal Wave, of Foreclosures

What about the scary stuff, all the foreclosures that banks haven’t even tried to sell yet, and all the past-due mortgages that should have been foreclosed months ago? We worry about that too.

We just hired an asset manager from a big bank, who just told the whole company how many repossessed homes the banks are waiting to list. It was like the vast evil egg farm Sigourney Weaver discovered in Aliens.

When are these little devils going to hatch?

Well, the rate of new foreclosures has been low for a year, a trend that continued in October. The number of homeowners who owed more than their home was worth has been dropping since 2009 and continued to drop in October. At this point, 27% of Americans are still either underwater or nearly so.

This tells us that for years there will be a steady stream – not a tidal wave — of distressed properties hitting the market, accounting for about 1 in 5 listings nationwide. Price can’t go up by much until this stuff runs out.

But it really helps that banks have become eager to approve short sales – where the bank lets the owner sell the property for less than the mortgage — in lieu of a foreclosure.

Rates Dip Below 4%

And the fact that many 2006 loans have an expiring 5-year teaser rate probably will make a difference: the new rate is actually lower than the teaser, and many folks’ mortgage payments just fell.

So now we arrive at the real reason the market has been improving: mortgage rates have been at historic lows, once again dipping below 4%.

I once said these rates can’t last, and everyone said I sounded like a used-car salesman, and that I was wrong. That was a year ago. I was wrong! But hey, so was half the government! These rates can’t last forever — but they’ll probably last a while yet. The Fed is committed to keeping them low for years.

Thanks for your support!

Best, Glenn

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 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:

The East and Midwest have been even more stable:


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

Now you can use the brand-new Redfin Scouting Report to look up stats on any agent — where he sold homes, how quickly, at what prices, with how many price reductions — all on a map, with pictures of every sale. It doesn’t work in Seattle and DC though.

The gerbils we tried it out on absolutely demolished their cages after we took it away. On the New York Times and across the big blogs we’ve been getting rave reviews, with one editor commenting that this is “the most disruptive real estate play in years.”

Meanwhile, Redfin’s own real estate agents now handle short sales, and our new Android app is already the top-rated real estate search tool on the Android Market. The iPad app is coming this winter, but what we really need are a few more San Francisco software engineers to get the job done; just write me back to apply.

Prices Up, But It’s Just a Seasonal Thing

Now let’s talk about what’s going on with U.S. real estate: home prices ticked up from the summer-time rush, interest rates are dipping below 4%, inventory is down, foreclosures are on the rise again, and demand is still weak but getting stronger.

The numbers for July just came out this week, and prices rose for the fourth straight month, which tends to happen during the summer:

Even when you say, “OK, that was just the summer,” and wipe out the gains, it’s still a big deal that prices haven’t fallen since April, especially since most pundits predicted another 8% drop from April – December 2011.

One reason stable prices are a big deal to me is that this is exactly what we said would happen in April. And the other reason is that when prices stabilize, buyers can start coming out in greater numbers, with more confidence.

The hitch is that many sellers will still hold off until prices actually rise; we all think our house should be worth more than it really is right now. This is the main reason why the number of home sales has been down, near the lows it reached last summer when the federal tax credit expired.

Demand Among Buyers Up Right Now, Listings Way Off

Hungry buyers and fewer listings are exactly what we’re seeing in our own business. Demand among buyers using Redfin agents increased fairly sharply over the past three weeks. This was unexpected since sales usually dip a bit in the fall, and the stock market has been a Rocky Horror Picture Show.

Last week, customers requesting tours was up 5% from the four-week average, and customers writing offers was up 7%. Demand in Seattle was weak but not anywhere else, and Southern California and Boston were really strong.

When we ask people “why now, when the summer’s over?” we hear about low interest rates, higher rents and “I couldn’t wait forever.” New Redfin listings on the other hand were down a whopping 64%. Many of the in-home listing consultations recently hosted by Redfin agents end with the owner deciding to wait until next spring.

So Why Is Inventory So Low?

The reason Redfin has been so confident about stable home prices is that the inventory nationwide is dropping. The number of homes for sale has declined 17% since last year. Shadow inventory, which represents the scary backlog of distressed properties that haven’t yet reached the market, has actually declined 16% year over year.

It isn’t hard to imagine why inventory is so low. Regular home-sellers are waiting for better days unless they absolutely have to sell. And banks that used to flood the market with foreclosures have been slowly withdrawing from the market, for now.

What worries us is that default notices – which the bank sends you when you don’t pay your mortgage for three months – spiked 33% in August. But foreclosure auctions are still near three-year lows. When we look at individual court records, we see the banks threatening to kick people out but never following through.

Maybe the banks just got tired of re-possessing and then selling properties. Maybe they realized getting the owner to sell the place for a loss is still a better outcome than a foreclosure that puts the bank on the hook for a sale. Maybe they had more poetic qualms. Or maybe they’re just gearing up for more foreclosures next year. We don’t know. Our best guess is that they’ve lost their appetite for destruction.

Interest Rates Dip Below 4%

But they certainly haven’t lost their appetite for lending money, at least not when the government is guaranteeing about 95% of all loans. Rates have been dropping like a rock, occasionally dipping below 4%:

Since most people have to buy the money for a home before they buy the home itself, the drop in interest rates has had more of an effect this year on what it really costs to own a place than any change in prices.

And that’s the news from Redfin! If you have any comments just write back and I’ll forward your question to a Redfin agent — if I can’t answer it myself. Happy October and thanks for all your Redfin support!

Best, Glenn

Howdy Redfinnians!

Here’s our August round-up of all the big real estate news! After falling to inflation-adjusted levels last seen in 1999 and 2000, prices are stable again, rising in most markets since April. Nationwide, prices increased 1.1%:

Case-Shiller Price Index Data for June 2011

Even adjusting for the summer surge, prices were still flat. So this is exactly the bottom in pricing that in February we predicted would begin in April, and it is fairly uniform across the West:

Case-Shiller Home-Price Index, Western Markets, Last Five Years

Prices have been less volatile in the East and the Midwest, and DC continues to be America’s strongest market:

Case-Shiller Home-Price Index, Eastern Markets, Last Five Years

A Cold Winter Ahead for Home-Buyers

Now the question is, with all the economic uncertainty in the Mad-Max aftermath of the debt crisis, will it last? Once the stock market lost a trillion dollars on August 5, we reported that the number of customers making offers that weekend actually increased. Strong demand held up another week, but then slipped last week by 18%.

About half of this is seasonal — the last bit of August is always slow because of vacations and the back-to-school rush — and the rest we think is genuinely due to economic uncertainty. We don’t think of this as a calamitous drop, and it’s hard to take one week as a trend, but it’s bad news.

But The Reason Prices Are Steady is Because of Limited Supply

The truth is that demand has been weak since the tax credit expired in the summer of 2010. The reason prices have stabilized is because of supply: there aren’t many buyers out there, but there are even fewer sellers.

Nationwide, the number of homes for sale has declined 14.1% since last summer. Our buyers constantly complain about the lack of inventory, and many just give up in frustration. A good deal is hard to find.

The first sellers to pull out of the market were the ones who drove prices this far down in the first place: the banks. More people are falling behind on their mortgages, but foreclosure activity just hit a 44-month low.

The drop in foreclosures is partially because the government made it harder for banks to take people’s houses, and the rest is because the banks decided they couldn’t sell those houses for much anyway.

Shadow Inventory Is Probably Smaller Than Most People Think

So now we see the banks sending delinquent homeowners one notice of default after another without ever actually foreclosing. This tells us that the shadow inventory that has taken on titanic proportions in the popular imagination is smaller than most pundits claim. And the regular human beings we talk to about listing their home for sale are often now deciding to wait a year for better prices too.

We don’t see the market getting swamped with new inventory while prices are low, but we do think that all the would-be sellers will jump into the game once demand strengthens, preventing prices from rising much either. This is why we think prices will stay low for a long time, but not drop significantly further. We’re on the bottom and that’s where we’ll stay.

Low Sales Volume is Mostly the Result of Low Inventory

When inventory is this low, sales are low too, down 3.5% in July, and down even more among foreclosures. The press often reports falling sales and rising prices as a conundrum but both are the result of there being very little to buy.

That’s it for August! If you have any comments or questions about a particular area, leave a comment below and we’ll hook you up with the best Redfin agent to pitch in with more local insights. We won’t bother you later, either. It’s our job, so ask away. Have a great August, and thanks for your support!

Howdy Redfinnians!

Welcome to Redfin’s straight-shooting, rip-roaring round-up of July’s real estate news!

While Redfin’s engineers launched a top-rated Android app, Redfin’s agents notched our best month ever, with happy customers and lots of homes bought and sold. July and August look weak but September looks better.

That can change fast. The debt ceiling makes every new home search — how did Robert Louis Stevenson describe his childhood? — like a picnic on the slopes of a volcano, and consumers are jumpy. This means that prices are going to be up-and-down.

Here’s a run-down of the key trends:

Rocky Bottom

Demand is weak, but supply is weaker. Prices have stabilized, with Tuesday’s Case-Shiller numbers for May showing a second straight month of increases, this time by 1%. Call it a seasonal gain if you like but in February, we said prices would stop falling in March. Others disagreed. Prices stabilized in April.

Release the Kraken

Ten months after the robo-signing scandal broke, banks are still gun-shy about putting foreclosures up for sale. Nobody else wants to sell at these prices, and rents are rising. The market, having relied on the banks since 2008 to set prices and force sales, is now like Shaquille O’Neal, hand-fed by his assistant for so long that he almost forgot how to feed himself. By our own estimates new inventory in June was down 5% – 20% from last year, depending on where you look; new bank-owned listings declined by as much as 35%. This is why prices have firmed up. How long will it last?

Silent Summer

Sales have been slow this summer. Home-buyers can’t get credit, and can’t find much good to buy. Would-be sellers are holding off ’til next year because they now think time is on their side. June sales were down 0.8% from May, but we’ve seen a surprising uptick in new demand just over the past two weeks, by about 8% compared to June. Could be a flash in the pan.

Cheap Rates, Tight Banks

Rates have stayed low at around 4.52% but what has changed just since May or so is tighter lending standards. A bank just asked one of Redfin’s customers to prove she’d get the same bonus from her boss through 2016. Sellers are jumping on cash deals even when buyers with financing are willing to pay $25,000 or $30,000 more.

The Rich Get Richer

Turn-key homes in centrally located neighborhoods with good schools are getting bid up $50,000 or even $100,000 this summer. Outlying areas are languishing. The drop hit the exurbs — rural places that became like suburbs in the last boom — the hardest in 2009, and here in 2011 those areas are still falling.

(Sorry about the mixed metaphors)

The market-by-market detail shows the biggest gains in the Bay Area because of the IPO frenzy, and recession-proof Washington DC. Seattle and Portland are doing pretty well too, but sales volume is so patchy up here right now it’s hard to tell if that’s a real trend:

Case-Shiller Price Index Data for May 2011

That’s it! If you have any comments or questions about a particular area, leave a comment below and we’ll hook you up with the best Redfin agent to pitch in with more local insights. We won’t bother you later, either. It’s our job, so ask away. Have a great August, and thanks for your support!

Howdy Redfinnians!

The latest real estate numbers came out yesterday and, as we predicted last February when every economist was headed for the hills, home prices increased in April for the first time since July 2010. Some of this was seasonal and real prices are probably flat.

Prices have stabilized because the supply of homes for sale has been falling, more than most folks realize. We’d be optimistic except that buyers, like sellers, are also waiting for better days. Applications for loans to buy homes haven’t been this low since 1997. After a monster June in our own business, Redfin’s July will be mediocre. To keep growing, we have to take a lot of market-share.

A Silent Spring, and Now A Quiet Summer Too

That’s bad news for the housing economy because July is usually Christmas-time for real estate agents. This year, however, the stores are a little empty: there are very few homes to buy, and very few shoppers too. Prices will be up and down for the rest of the year — after being very bearish in 2010, we are sticking to our contention that the big drops are behind us — and sales volume will be very low.

The exceptions are areas where tech- or government-powered employment has kept demand relatively strong, especially the Bay Area, Washington DC and maybe Seattle:

Case-Shiller Price Index Data for April 2011

The Standoff Between Buyers and Sellers

If you dig into the numbers, what you see is a market grinding to a near standstill, with supply and demand both falling:

• The supply of homes for sale is at a five-year low, and it isn’t increasing much this summer. The supply of new homes for sale is at the lowest level ever recorded.
• Foreclosures continued their “freefall,” dropping 2% in May after a 16% drop in April. Foreclosures have driven all the big price drops over the last three years.
• Rents have been rising, making home purchases more attractive. Price-to-rent ratios for homes are at October 2000 levels.
• The number of homes sold in May actually dropped, 3.8%, from April levels.
• Touring traffic to new homes for sale dropped 15% in June.
• Mortgage rates have stayed very low, at 4.5%, but many folks can’t get credit, leaving the best deals for cash investors.

Applications to Borrow Money for Home Purchases At Record Lows

When Will The Hormones Kick In?

In the standoff between buyers and sellers, no one seems likely to blink in 2011. Over the last three years, when nobody else wanted to sell, the banks would step in and unload half a million foreclosures, forcing prices down; today, banks are tired of taking losses and lawsuits on foreclosures, and instead just modify the loan or agree to take a smaller loss on a short sale.

Before that, buyers kept the party going, snorting up liar loans in the bathroom then macking on the first house they saw, driving prices up. Now, the market looks more like a middle-school dance, with buyers and sellers waiting one another out on either side of a large, dusty gym. It’s always hard to say when the hormones will kick in; maybe in three months, maybe in three years.

For now, that’s our take on the market. As usual, we’d love to hear yours, too, so just leave a comment below. Happy July 4th, and thanks for supporting Redfin!

Best, Glenn

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:

Now focus on the last two years:

It’s the same story in the East and Midwest. The first dip was a doozy:

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

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

Howdy Redfinnians!

Welcome to our big March synthesis of all the national real estate trends! The news is bad for home-owners, good for buyers: prices are down, sales are down further. The smart money is moving in, as a whopping third of all home-buyers are investors, but the typical consumer is still a bit scared.

Foreclosures are at a 36-month low, which will limit price drops for now, but other would-be home-sellers aren’t picking up the slack: in many core markets there are plenty of year-old listings, but nothing much shiny and new. Rates dropped again.

In our own business, we launched Agent Insights, where our own agents take notes on listings as we guide buyers through them, sharing these notes with our other customers on our website. To see what we think of a home before driving out to it yourself, just click on any starred listings:

In some areas, we see as many as one third of all homes in person…Now let’s dive into the numbers!

Prices Drop 1% in January

The Case-Shiller analysis of January home prices came out Tuesday, showing a 1% decline since December. Every market fell except Washington DC; the steepest monthly drop was in Minneapolis, then Seattle:

We expected a January decline, predicting last month that prices would fall to “dreadful” levels in January and February, but rise again in March and April, mostly because the stock market has been making people feel richer. Stocks have almost doubled since March 2009; housing prices in that time have increased only .6%.

The 2007 — 2008 decline was precipitous in the West, with a nice bounce in 2009 that has now disappeared:

In the East & Midwest, the decline was more gradual, and, except in Washington DC, the bounce less pronounced:

The Market Falters, But Isn’t Plunging into the Abyss

Since we predicted that prices would stop falling in March and April, Japan and the Middle East plunged into turmoil and consumer confidence faltered–though not as much as most analysts feared. We aren’t as sure of the market anymore. Prices may fall, though we don’t see any basis for a significant drop.

Bill McBride, who called the housing bubble in 2005 on his blog Calculated Risk, is also mixed. He wrote yesterday that nationwide price indexes won’t fall more than 2% – 7% from current levels because there are so many all-cash investors, especially at the low-end. All-cash sales are at record levels, especially in the most distressed markets.

Bill also notes that rents have been increasing, so that the ratio between rents and home prices is only 15% – 20% above where it was pre-bubble. This is a key metric, since the need for shelter is mostly constant. As rents increase and prices fall, more would-be renters become buyers, and more investors buy properties for rent income.

The Stand-Off Continues: Nobody Wants to Sell at These Prices

Our own business saw a 25% increase in March closings but April seems likely to be only slightly better than March. Usually at this time of year, we expect demand to jump from month to month through June.

Part of the problem is limited inventory, as the winter stand-off between buyers and sellers continues: home-owners are unwilling to list their homes at current prices, and buyers are tired of looking at last year’s listings. One reason we’ve been seeing lower prices is just because of low-end inventory, not low demand: the only homes to buy are pretty bad.

And banks, under government pressure after the robo-signing scandal, have forced less inventory onto the market: foreclosures declined 21% from November to January, hitting a 36-month low; foreclosures may bounce some but the government is pressuring banks to let more home-owners sell their properties prior to foreclosure.

Sales Fall 9.6%, And May Get Worse

Without blue-light foreclosure specials, buyers and sellers have been reluctant to mate on their own in the wild. The really scary number is the decline in February new-home sales, which is 16.9% below January levels. For previously owned homes, February sales volume actually fell a whopping 9.6%. Sales were 2.8% lower than last year, when there was a federal tax credit goosing activity.

The year-over-year decline was a lot better than we thought it would be, actually. And the numbers are going to get better, as pending sales increased 2.1%, when economists had been expecting a 1% decline. It will take time for the market to perform on its own, without banks driving down prices and the government driving up demand, but we think this will be the first year that happens since 2007.

Interest Rates Calm Down, a Bit

One reason for a big hole in the usual spring run-up in home sales has been interest rates. Rates spiked mid-February to 5% or higher, which gave home-buyers a big scare. Since then, rates have returned to an average of 4.81% for a 30-year mortgage, in part because investors flustered by Mideast turmoil and Japan fled to mortgage-backed securities:

Folks made fun of us last year when we said houses would get a bit cheaper while the money to buy a house would get much more expensive. Yet this is exactly what has happened.

And that’s our take on the U.S. housing market for March. It isn’t going to get better any time soon; prices might drop a bit more, and rates may rise. Thanks as always for your support, and please share any feedback with us in the comment section below.

Best, Glenn
Glenn Kelman | CEO, Redfin