Altos Research Real Estate Insights

So Trulia.com and Zillow.com booked booth space at Prudential Real Estate's convention this week in San Diego. 20 minutes before the show floor opens, they're asked to leave. Zowie.

Apparently, the Prudential / Yahoo partnership is to blame. Trulia and Zillow, with their no-referral-fee businesses, threaten the entrenched model that Pru/Yahoo have had for years.

What's less clear is who flipped his lid at the last minute. Was it someone at Yahoo saying, "Get my competitors out of here"? That's at least a little odd, because Yahoo and Zillow also have a partnership. Was it Russ Capper from Prudential? Most of us never think about the vast sums of money in the real estate lead referral business and it makes sense that some of that flows to Prudential from the Yahoo real estate search pages. But Pru has partnerships in place with these guys too.

Either way, the incident is merely the most recent hallmark of our massively shifting world. Like any innovator's dilemma, the old guard has to defend their bread and butter while the new guys eat away at the business. The scraps they take now are too small to sustain the existing players but enable the new guys grow to steal the whole loaf. Yahoo and Prudential are not alone as endangered incumbents here: HouseValues and HomeGain, and even Zip which has it's vast network of website referral partners - all face unbelievable risk.

As an aside - it is this essence that underlies my preference of the Trulia business model vs. Zillow's over the long haul. Of the basic questions that the sites answer: "what's for sale?" vs. "how much is my house worth?" the Trulia question is much closer to the transaction itself, and thus better positioned to capture a greater share of the referral dollars away from the incumbents.

Sami at Trulia takes the whole episode in stride, and it sounds like he got his customer meetings anyway, they just couldn't do the exhibit-floor booth. (Ironically, doing booth duty at these types of shows rarely results in new business. Rather it's simply a means for a partner to show a little support when they're going to be meeting and greeting anyway. Likely the Trulia and Zillow guys saved a few days of aching feet and a pile of throw-away business cards. I'd be saying Thank-you.)

The Sellsius guys, broke the story, natch.

Great reading all around, but my highlight of the day is Nina at Queercents who dives into Zillowrama with the brilliant suggestion for a passive-aggressive, better-than-an-anonymous-tip-to-the-city-code-inspector "Make My Neighbor Move" feature.

This may come as a surprise to many of our readers, but this spring is shaping up to be a pretty hot market in the Bay Area (especially the Peninsula, with the more desirable spots in the East Bay and South Bay trailing, not far behind). We have plenty of anecdotal evidence coming in from our Realtor clients and friends: multiple offers, three-day sales cycles, etc.

So the question is, where in the stats can one turn to measure this transition? Obviously we see the price charts start to march upward with greater demand. But that's not enough, because prices are influenced by lots of exogenous factors and may lag the actual demand a bit. So we decided to explore a different measurement: Days on Market. In a cool market, many properties sit around for a long time. We watched Days on Market climb upward all last year. Now however, if lot of homes are selling quickly with multiple offers, we should see that fact immediately in the Days on Market indicator.

Specifically, when watching a transition from cool to hot, we should see median DoM drop first while the mean DoM stays high. (Remember that median implies half the homes on the market are on for less that this number. And mean is the average of all properties, so a handful of homes that have been for sale for, say, 12 months keeps the average high.)

For example, our client Bart Marchioni recently sold a place in Willow Glen San Jose in 7 days when the average home has been on the market for over 100 days! Good, fresh properties come available and get sold right away, but the stale ones are still sitting around. That's your transition.

So we dove into the Bay Area housing market data to see where the hottest markets are emerging. We looked for zip codes with greater than 15 single family homes for sale, then we looked for those with the greatest percentage difference between the median days on market and the average DoM. What we found confirms what we're hearing from clients are the hottest markets. Here are the 10 hottest Bay Area housing markets ranked by percent difference in median and mean days on market:

* Days on Market rounded to nearest week. See also this post on recent DoM methodology changes we did.

So in West San Jose (Cupertino and Saratoga schools!) half the properties on the market are newly listed. But the average property has been on the market for two months. Sales rates have stayed high so this is not driven by a buildup of new inventory.

Note the theme we've been talking about for a while here: ALL of these markets are close in. These top ten zip codes are from a sample of several hundred in 12 Bay Area counties. Four of these are Peninsula towns, two in the South Bay and three in the East Bay. If the trend holds, and the number of buyers continues to grow, expect the market strength to bleed further out from the Bay Area's geographic heart. If it does, you'll be the first to know.

Kevin Boer points us today to the most insightful real estate statistic I've seen in a while. The evidence is in and it proves that the more photos you take of your home, the higher the price you'll get for it. Kevin credits this value add the realtor; our hypothesis is that the pictures improve the value of the property itself (clearly this amount of price increase can't be attributed to negotiation!)

Want a more valuable home? Take more pictures.

We'll be incorporating this variable into an AVM regression and patenting it (with license royalties to Kevin of course) before Zillow tries to ape it into their zesitmate.

Last week while discussing the subprime mortgage meltdown and it's effects on the housing market on Bloomberg TV, I made a comment that host Rhonda Schaffler jumped on and caught me by surprise. I said something to the effect of this:

We're very early in the effects of this market meltdown's impact on the housing market. We're likely to see more bankruptcies and financial trouble for the lenders in the short-term. Then we'll see lending standards harden, regulation increase, criminal activity exposed... all these factors will conspire to make it significantly harder for first-time buyers for many years.

My intent was to emphasize the long-term nature of this problem for the housing market. Rhonda focused on the criminal activity comment. "When you say 'criminal activity' are you saying you know something beyond what we know already?" she asked.

Rhonda wanted to make sure I wasn't directly accusing anyone of criminal activity. Of course, I only meant to point out that in the frothy bubbly markets, these things have a way of rearing their ugly heads after the fact.

Exactly one week later, this news alert crossed my desk from the WSJ:

NEWS ALERT
from The Wall Street Journal

March 2, 2007

New Century Financial is the target of a federal criminal inquiry into its accounting and trading in its securities, and said its auditors could warn of "substantial doubt" over the home lender's ability to remain in business. Fremont General, another big lender, said it plans to stop making subprime residential loans and is in talks to sell that business.

The news came the same day federal bank regulators announced a crackdown on loose lending standards on subprime home mortgages.