HERE COMES EVERYBODY
first inflection point came in 2011, with stabilizing prices. Prior to
that, banks were still the market-makers in most cities, controlling
inventory levels and setting prices through sales of foreclosures. But
then last fall, the number of foreclosures for sale began to drop steeply;
few individual home-owners were willing to pick up the slack by listing
their own home, especially at the prices set by the banks. Inventory
fell so far so fast that we soon began to see bidding wars, and prices stabilized.
rising prices will bring sellers back to the market. Every day this
year, Redfin agents have been meeting regular people to discuss whether
to list now or hold off in the hope of a higher price next year. Many,
at our encouragement, have been holding off.
If you think we're
anywhere near the bottom, and you don't mind waiting, why sell now? The
inventory crunch has been compounded by rising rents and
falling interest rates. In most American cities you can easily find a
renter willing to pay your monthly mortgage and then some.
believe the sellers will start to come out in greater numbers next
year. Waiting for them will be hundreds of thousands of would-be US
home-buyers, who are now headed toward the holidays frustrated at having
failed to find a listing in 2012. We think of these buyers as a source
of shadow demand, perhaps not of the same magnitude as the shadow
inventory one held back by the banks but very large.
the shoulder season before Thanksgiving, we're seeing plenty of "domino
listings," where one home-owner puts his house on the market and
immediately gets a sale, emboldening his neighbor to follow suit.
significantly, 2013 will be the first year in the last seven that will
begin with a broad consensus that home prices are rising. Inventory has already started to increase in at least one market, Phoenix, as higher prices there induce owners to sell. As more listings appear nationwide next January, more sales will follow.
THE ECONOMY'S SECRET WEAPON: NEW KITCHENS
more subtle change is driving employment: the amount of money people
are putting into the homes they buy and sell. Economists often talk
about home prices in abstract terms, as if people were simply paying
less in 2010 for the exact same asset that sold in 2005.
fact, Americans stopped putting money into homes over the past six
years. Hard-nosed buyers stopped falling in love with finishes, and just
did the math on how much they were paying per square foot. And sellers
took note. Banks selling off their foreclosures stopped mowing the lawn,
much less renovating the kitchen. The value of American real estate
plummeted in part because America itself just started to look shabbier.
changing. Builders are trying to justify higher appraisals with
expensive add-ons. In markets like Washington D.C. and Orange County,
California, we see homeowners investing in a new kitchen or an extra
bedroom and convincing themselves they'll recoup part of the cost next
year in a sale. Investors are pouring $50,000 into a home so they can
sell it for an extra $200,000. This means that carpenters, electricians,
plumbers and builders are getting more work and staying off the dole.
will improve next year because more of these folks -- and more real estate
agents, lenders, inspectors and appraisers too -- will have jobs. This
doesn't mean real estate will grow to the proportions it had at the
height of the Bush-era bubble, when it was two and a half times larger than it is today. But it does mean that things will get much better. In fact, it's why they already have.