Seattle Bubble

One of the topics discussed frequently on this blog is the notion that prices in the suburbs are likely to fall much further and faster than prices in the urban core of Seattle. Yesterday Zillow posted their quarterly market update data. I will say that while I’m ambivalent about Zillow’s “Z-estimate” feature, which attempts to predict home values - I find that as source of historical data on market trends at the neighborhood level, the site is an invaluable resource. The mapping feature on the site for the report (which uses this historical data) gives a really nice visual confirmation of the notion of prices falling in commuter zones first.

I pulled this snapshot off the site at a 15 mile granularity. It is almost as if you could draw rings around Seattle and predict the rate of the decline in home prices. No real news here, but I thought it was an interesting visual confirmation of an often discussed concept.

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).

Click to enlarge

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)

A couple people pointed out a piece in the Wall Street Journal yesterday titled The Housing Crisis Is Over. I don’t doubt that the mere fact that it was printed in the WSJ makes it gospel to some folks. I am not interested in writing a rebuttal to this piece, as that has already been handled quite well by our friends at Calculated Risk. All I would like to add is to point out that this is an opinion piece, not a news article. In the opinion of a guy that runs a hedge fund and stands to profit healthily from the recovery of the housing market, the crisis is over. Not exactly a shocking revelation.

Meanwhile, Fannie Mae, “the nation’s largest buyer of home mortgages” announced huge losses today, and forecasts “a steeper drop in home prices this year.” Yeah, the crisis is over folks, nothing to see here, move along.

In other news, Les Christie of CNNMoney.com is singing a bit of a different tune than she was in mid-2006, when she was touting our “strong fundamentals” and declaring Washington State to be the “next hot market,” or just last summer, as the local market was hitting its peak, when she declared that in Seattle, “the housing boom goes on.” Her latest headline is not quite as positive: Bulletproof housing markets get hit.

Some of the last, best housing markets - the ones that continued to climb even as the rest of the country cratered - have turned south lately.

Seattle, Portland Ore., Charlotte, NC, and Salt Lake City all posted home price gains during 2007, even as more than half of the 150 markets tracked by the National Association of Realtors registered declines. Now they’ve joined the losers.

Of course, the Seattle market was never “bulletproof,” just late.

Speaking of the local decline, Zillow released their latest Quarterly Home Value Reports this week, which contain some interesting information about our area’s market. Of particular interest is the chart showing the approximate percentage of homeowners who bought each year that now have negative equity:

There’s also a corresponding map on the charts page showing how all that negative equity is distributed around the region. Interesting stuff.

I think that’s enough to digest in one post.

(Cyril Moulle-Berteaux, The Wall Street Journal, 05.06.2008)
(CR, Calculated Risk, 05.06.2008)
(Les Christie, CNNMoney, 05.06.2008)
(Quarterly Home Value Reports, Zillow, 05.05.2008)

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)

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