Seattle Bubble

There has been some great stuff coming out of our Seattle-area “alternative” real estate businesses Redfin and Zillow this week that deserve to be mentioned.

First up, Redfin came out with a great paper called Seven Tactics for Real Estate Bargaining. Check out their blog post announcing the study here. They analyzed recent sales data from 9,053 single-family-home sales across three markets, including 2,446 in King County, looking for homes that sold for a large discount from the last asking price.

Many of the characteristics they identified in homes that sold for a large discount were exactly what you would expect, but it’s great to see some hard data to support your gut instinct when it comes to negotiating a good price on the largest purchase of your life.

Here’s their seven tips on where to look for a seller that’s seriously ready to negotiate, and who to avoid:

• Focus on Listings Unsold After 90+ Days
• Focus on Fixer-Uppers
• Back Off on Remodels
• Don’t Be Put Off by a Price Reduction
• Look for Homes Owned a Long Time
• But Don’t be Put off by Flips Either
• Don’t Expect Banks to Negotiate Much

Sound, data-driven advice for anyone looking to drive a hard bargain in today’s so-called “buyer’s market.” Check out the full report here (pdf).

Next up is a survey from Zillow that (like Zillow itself) is more entertaining than particularly useful, but is still worth a look. The results of their Q2 Homeowner Confidence Survey of 1,367 U.S. Homeowners showed that:

Nearly two out of three homeowners (62%) believe their home’s value has increased or stayed the same over the past year; however, the reality is that 77% of U.S. homes have declined in value.

They also blogged the announcement of their survey results here. Another amusing tidbit from the survey results:

Three out of four (75%) homeowners expect their home’s value will increase or stabilize in the coming 6 months. However, when asked about their local market, 42% think home values in their locality will decrease (compared to the 25% who think this about their own home).

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So at least 39% of the people are delusional about the value of their own home over the past year, but only 17% are delusional when it comes to the value of their home in the coming year. Hey, at least it seems to show a slight trend toward recognizing reality.

(Glenn Kelman, Redfin Blog, 08.07.2008)
(Amy Bohutinsky, Zillow Blog, 08.06.2008)

I have a couple of RSS feeds from real estate sites that I use to monitor listings that might be of interest to me.  They are targeted at a couple of neighborhoods, and focused on homes that are likely to be mid-century modern.  Over the past couple of weeks, I had noted that the volume of new listings had really dropped off.  I mean, there was almost no activity. I attributed it to the market slowing down - figured it was just a late summer phenomenon.

Then I checked them this morning, and was surprised to find five or six new listings on each.  What was going on?  So I headed over to Redfin to check to see what Seattle had in the way of new listings overall (side note:  what did we ever do before Redfin!?).  What I found there was pretty interesting:

• There were 108 new listings in Seattle yesterday, versus 123 in the last three days and 350 in the last week.  The rate of new listings was double the average of the last three, seven, or fourteen day period!

• I figured this might be some sort of statistical anomaly - so I checked Bellevue too.  It looks almost exactly the same:

Checked Tacoma too. Same story:

I’m not sure what might be going on.  I thought that listings were more likely to come on to market early in the month, not late in the month - but they seem to have exploded on the last day of the month.  I see three possible explanations:

1. It’s normal.  The drop off just reflects the fact that homes sold.  (I don’t personally think this makes sense.  Homes aren’t selling all that quickly, and I don’t think it would explain the big difference between the one and 3 day average)
2. There was some sort of glitch in the feed from NWMLS and new listings didn’t get posted for a couple days
3. What I initially surmised:  that sellers had been waiting to see what happened with the Housing Recovery Bill and decided that since it was signed,  it was a great time to jump back into the market.

What say ye?  Any other perspectives?

A couple of national outlets have had interesting stories about Redfin in the last few days. Since you’re not likely to read about it in the “we pretend Redfin doesn’t exist” local agent blogs, I thought I’d highlight them here. First up is a New York Times story that claims the bursting of the real estate bubble isn’t stopping Redfin (or Zillow, Terabitz, and Trulia) from growing.

It was late October, and Redfin, an online real estate brokerage firm based in Seattle, had received just three months earlier a $12 million investment led by the marquee venture capital firm Draper Fisher Jurvetson. In the interim, the mortgage industry melted down, foreclosures spiked and housing sales slowed to a crawl. Now, one of Redfin’s biggest markets, Los Angeles, was battling a series of wildfires and Redfin’s sales had stopped cold.

Redfin was not the only victim of bad timing. Venture capitalists poured about $50 million into three other real estate Web sites last year — Zillow, Terabitz and Trulia — only to watch the market enter a historic slide.

Now, although most of the real estate industry wishes it could fast-forward through 2008, these online start-ups are surviving nicely. Each company recently reported strong sales and increases in Web traffic. Trulia surged to the top by the end of 2007, from sixth place in 2006, according to Nielsen Online.

Although these sites are not growing as quickly as they might have during a bullish market, they are at least growing.

“In September, we thought it was maybe the beginning of a very long downturn,” said Glenn Kelman, Redfin’s chief executive. “But for whatever reason, the last few months have been very strong for us.”

The second story, from Forbes, chronicles some of the unique trials Refin has faced as they have positioned themselves as an alternative to traditional brokerages.

Glenn Kelman, Redfin’s chief executive, knew it wouldn’t be easy to shake up the real estate brokerage business. Tradition-minded and protective of their turf, Realtors don’t take kindly to discounters. Still, says Kelman, he scarcely anticipated the dirty tricks aimed at his online discount brokerage.

In southern California Redfin’s for-sale signs are often knocked down, stolen or smashed. In Seattle a traditional Realtor posted Kelman’s address online, and a sturdy Redfin yard sign at his house was soon hacked down. In a national forest near Yosemite National Park someone affixed fake Redfin bumper stickers to signs, trees and rocks to make the company look like a shameless promoter and defiler of the environment. After Redfin staffers removed the stickers, which they have never used to pitch the Seattle company, the trickster started tossing the signs, attached to weights, into branches of sequoias. “I never considered how violent the reaction to us would be and what that would mean to our customers,” says Kelman, 37.

Yikes. If that’s how some of these real estate “professionals” act, I guess I can understand why many of my bubble-blogging counterparts around the country have chosen to remain anonymous.

(Bob Tedeschi, New York Times, 01.28.2008)
(Christopher Steiner, Forbes, 01.2008)

Seattle got a little bit of attention in a recent Wall Street Journal story titled Housing Slump Starts to Hit Stronger Cities:

It’s getting harder to hide from the housing bust.

Tight credit, fragile consumer confidence and a weakening economy are slowing sales and depressing prices even in some places — such as the Pacific Northwest and North Carolina — that until recently had avoided the housing slump afflicting most of the country.
…
Some of the fastest increases in home listings have occurred in relatively strong markets. The inventory in the Seattle metro area counties of King, Snohomish and Pierce leapt 50% last year. At the end of December, when listings are lower than usual because of the holidays, the inventory there was enough to last 4.9 months, denoting a fairly balanced market — but up from a very lean 2.7 months at the end of 2006. In King County, the median price in December was down 2.6% from a year ago.

Given the rise in supply, home prices in Seattle probably will fall further, says Glenn Kelman, chief executive of Redfin, a real-estate broker based there. “If you walk around town, you see cranes everywhere,” he says.

I guess Glenn figures that it isn’t really possible to be any more reviled than he already is by “traditional” real estate salespeople, so why not call it like he sees it. It’s nice to see the national media giving some attention to the Seattle market that is something other than the usual look what a great investment type of stories.

I’m not sure where the WSJ got their months of supply figures from though, because the numbers they quote don’t match any that I’ve seen from the NWMLS. They’re correct when they say inventory across King, Pierce, and Snohomish is up 50%, and prices in King are down 2.6%, as that data matches the “res + condo” figures from the NWMLS. However, when you divide the total inventory at the end of December by the number of pending sales (the traditional method for determining “months of supply”), you get 8.4 months of supply in December 2007 (not 4.9), and 3.8 in December 2006 (not 2.7). If anyone can figure out where those numbers came from, let me know. The NWMLS data can be found in the December 2007 Recaps linked here.

(James R. Hagerty, Wall Street Journal, 01.14.2008)

Update: In the comments Garth pointed me toward the chart that was included with the story, which I overlooked. In the chart, the “Overall Strength” of the Seattle metro area housing market is listed as “moderate.” In the footnotes, it indicates how they arrived at their months of supply figure:

Number of months that homes listed at year end would last at the average 2007 sales rate. Listings normally decline for seasonal reasons in December and rebound in January.

Taking the average of the whole year is a ridiculous way to calculate “months of supply,” for all the same reasons laid out in this post. In reality, the seasonal decline in sales rate is accompanied by a seasonal decline in listings, which tend to balance each other out. As you can see below, the “months of supply” really took off in late 2007.

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Here’s a roundup of some local real estate stories that came out this weekend.

• The Times and the P-I give Redfin some free advertising by covering their list of Seven Tactics for Selling Your Home.
• According to the Times, local builder Quadrant Homes (owned by Weyerhaeuser) is impervious to the housing market slowdown.
• From the sounds of Phuong Cat Le’s report in the P-I, I’m not the only one that thinks that few will qualify for the mortgage “rate freeze.”
• Also worth mentioning is a weekend column in which Steve Tytler repeated his prediction that home prices will “drop about 10 percent to 20 percent over the next year or so” then “flatten out.”
• Lastly, check out this article in the Times about the especially slow market in south King County.

It’s interesting how much the general tone of news articles have changed in just the last six months. I think the local consciousness is finally starting to realize that Seattle may not be magically immune to the housing bust after all.

Today, Everett Herald reporter Debra Smith shows how Laura & Jon Ward saved $9,000 by using Redfin. The caveat is that they did most of the legwork in finding their home to buy. How much work would you be willing to do if you could save thousands? Some have the time, some don’t.

“Taking $20,000 in commission? That’s absurd. If I’m willing to do the work, I don’t want to pay full commission.”

- Jon Ward, Mountlake Terrace Homeowner.

The National Assoc. of Realtors projects that the majority of people start their home search online. My personal experience coincides with this too. I found my own home via the internet (at the Seattle Times.) But back in 2004, Redfin didn’t exist, nor Zillow, or Shackprices.

It appears the frontier of financing is changing too. The problem is that many consumers are unaware where to get information to help keep money in their wallet. Web logs are probably blowing those doors wide open. Doors that have been kept closed for so long.

-S-Crow