Daryl Fairweather is the chief economist of Redfin. Prior to joining Redfin, she was a senior economist at Amazon working on problems related to employee engagement and managing a team of analysts. During the housing crisis, Daryl worked as a researcher at the Boston Fed studying why homeowners entered foreclosure. Daryl received her Bachelor’s of Science from the Massachusetts Institute of Technology and received her Ph.D. and Master’s degrees in economics at the University of Chicago where she specialized in behavioral economics. Daryl Fairweather is the chief economist of Redfin. Prior to joining Redfin, she was a senior economist at Amazon working on problems related to employee engagement and managing a team of analysts. During the housing crisis, Daryl worked as a researcher at the Boston Fed studying why homeowners entered foreclosure. This week, we cover migration trends, what buyers are looking for in a new city, which pandemic real estate trends (like work from home) are here to stay, and what real estate professionals should know about trends in 2021.
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00:00 The Data Driven Real Estate Podcast Welcomes Daryl Fairweather, PhD, Chief Economist of Redfin
00:59 What is Redfin and Redfin Concierge?
04:05 Foreclosure crisis in 2021?
05:25 COVID-related migration and real estate prices
12:14 What real estate trends in 2020 were surprising?
13:24 What is behavioral economics?
19:23 Gen Z and Y trends in real estate?
24:06 Is work from home the new normal?
29:50 What are people looking for when they move to a new city?
35:43 Are there any specific criteria that people look for when buying a home?
37:03 What real estate trends should we expect in 2021? Affordability? Interest rates?
39:56 Cities are going to invest in culture to keep people from moving?
41:22 Does lower interest rates increase home affordability?
45:35 Baby Boomer real estate trends?
49:07 Will the US mimic Japan on inflation and interest rates?
Aaron Norris 0:07
Welcome back to the Data Driven Real Estate Podcast, the podcast for real estate professionals dedicated to driving business using data. I'm Aaron Norris along with co- host Sean O'Toole of PropertyRadar, and this week on episode 27. We've got Dr. Daryl Fairweather, Chief Economist of Redfin. I've been following her work on Twitter for some time, and she always brings a very interesting nuance to the party when it comes to the real estate economist game. She's got an interesting background with the Boston Fed during the foreclosure crisis. She worked at Amazon. And now working with Redfin, she studies consumer behavior on top of real estate trends. So, this week, we talk about COVID related trends and what's sticky, a different demographics. And different generations are handling the pandemic, where they're moving to, what's popular, what's not, a trends in home ownership, and even what they're buying, and then other trends that she expects to see in 2021 and beyond that, and much more. Don't miss this week's show. Thank you for joining us, Darryl.
It's so nice to have you on the show. For people who are not familiar with Redfin, how do you describe it?
Daryl Fairweather 1:06
It's a technology driven real estate brokerage. So, most people probably know Redfin, from our website, you can go and look at all the listings that are available. But we also have a full brokerage with agents to help you buy or sell a home. And we use technology to make that process go a whole lot smoother. And we're also trying to be the one stop shop for real estate. So, we have a mortgage company, we have a title company. So, pretty soon it's going to be everything related to buying or selling a home you'd be able to do with Redfin.
Aaron Norris 1:36
Any other, while we're here any other category that is on the horizon that we don't know about? I don't know there's a lot of pieces.
Daryl Fairweather 1:47
Um, nothing that I can disclose. Although I think that we've I think everything that's out there. We've already been talking about. So, the lesser known things that we do, though, is Redfin Concierge, like I'm selling my home right now with Redfin Concierge. And so, I have a Redfin Concierge agent, helping organize all the work that needs to be done on the home. I'm remodeling the kitchen, the bathroom, we even knocked down a wall between the kitchen and the dining room. So, although like the contractor is its own company, Redfin is helping coordinate all that work. So, I don't have to lift a finger.
Sean O'Toole 2:20
How does that work financially? Does that, does the money come out of the close of escrow or do you have to pay for that up front or?
Daryl Fairweather 2:28
So, Redfin Concierge charge instead of one or one and a half percent, it's two or two and a half percent, depending on whether you're buying and selling with us. And that extra 1% pays for the basics, like new paints, light landscaping, cleaning, staging, and then everything on top of that is out of pocket. So, I'm paying up front for the big work that's being done.
Aaron Norris 2:53
Interesting. I didn't know about that.
Sean O'Toole 2:55
I didn't know about that at all. Yeah.
Aaron Norris 2:58
Interesting, juicy stuff. Okay. And then, your journey into the real estate space. Sean and I were just talking about your bio. You're, in 2009 you were with the Boston Fed for a while, right?
Daryl Fairweather 3:10
Yes. So, this was at the peak of the foreclosure crisis, I was doing research on behavioral economics, specifically on the behavioral reasons why people entered into foreclosure. That was like, I think the big economic revelation of the last financial crisis was that economists didn't really see it coming. They didn't predict that people would get so caught up and appreciation and valuation of homes, that they would kind of forego rationality. So, we want to understand why people got involved in these mortgages that they couldn't end up paying. So, I would call up homeowners and ask them a whole slew of questions about the financial situation about the terms of their mortgage, trying to see if they understood the terms of their mortgage, ask them some like behavioral questions like would you rather have $10 today, or $15 in a year, things like that, to try to figure out what exactly happened?
Sean O'Toole 4:05
Any big, I mean, this was quite a while ago, this is back in 2009. And right, it was basically like an internship. So, obviously, you've done a lot of things since then because we, you know, got our start in foreclosures. It's particularly interesting to us. So, if you don't mind, I'd love if you came away with any big conclusions or from that we just touched on a little more.
Daryl Fairweather 4:29
Yeah, there were two big reasons that people end up on the foreclosure. One was that they just didn't think that home prices could go down. I mean, home prices have been going up for so long. They just couldn't imagine a situation where home prices will go down by as much as they did. And they didn't go down quite a lot. It was more than I think anybody was expecting. And then the second reason was people had like a crisis on top of that, so it wasn't enough for homebuyers to go down because you could keep paying your mortgage if you still had a job. But a lot of people they lost their jobs. And they had like a medical crisis or they got divorced, or there was some other life circumstance where they couldn't pay their mortgage at the same time that their home was going down in value. And that's why they would end up in foreclosure.
Sean O'Toole 5:12
Aaron Norris 5:14
Well, some questions that people are feeling in some markets because of sort of COVID migrations and prices doing some things, it just feels very similar, so.
Daryl Fairweather 5:24
It's really not, though.
Aaron Norris 5:25
It's not, it's not. So, let's talk about that. Let's just jump into it. Why not? Why, how is this time in your opinion so different than last time?
Daryl Fairweather 5:33
It's really about just the fundamentals of supply and demand. Right now there is more demand than there is supply and that's why prices are going up so high. And people have a lot of equity in their homes, people have, the price have been going up for quite a while people have been paying off their loans and the kinds of people who got loans since the last foreclosure crisis, I've had really good credit, and are just the kind of people who aren't using their homes as piggy banks. So, even if prices were to go down, most people have a really good cushion. And we also don't think that prices are going to go down because there is this housing shortage. Even in a market like San Francisco where there's a ton of new listings today in the market and people are leaving, prices haven't collapsed. Prices are pretty steady. I mean, they're down maybe like 1% from last year in certain areas, but nothing like a crash.
Aaron Norris 6:22
Sean O'Toole 6:23
There wasn't, there wasn't an excess housing supply in 2006, 2007, either really, right. It's not like population and number of housing has changed that much from that period of time, or do you feel like it has.
Daryl Fairweather 6:36
There was an excess in certain places. So, there was over development, and like, the suburbs of cities like Phoenix or Las Vegas, builders were kind of getting overzealous and how much they could build and what prices they thought they could get for them. So, that did contribute to supply. I mean, it didn't contribute to there being so much supply, that everyone had a house to live and we definitely never reached that point. But, you know, there was a bit of overbuilding. And then the other point is just that the price growth back then, really was based on, what's the word? Belief, the prices will keep going up basically speculation. Right now, the prices aren't being driven up by speculation, it's not like we're seeing a time of investors trying to flip houses the way that they were back then just based on the idea that prices had to keep going up, and they can make their money back.
Sean O'Toole 7:28
So, I mean, there is a little lower percentage of flippers today than then but flippers weren't a very large part of the market, even then, I think peaked at around five or 6% right. So, so, in terms of, you know, like, in my local town here of Truckee, we've seen prices at the low end, increase almost 50% since the start of COVID. And you know, that feels a little irrational, too.
Daryl Fairweather 8:03
Yeah, I think, Truckee is probably a good example of a place where there may be speculation based on how many people are leaving a place like San Francisco for a more rural place, like Truckee and people may be getting ahead of themselves. I think what you may see happening is that there will be a couple of years of really fast price growth, and then a couple of years of really slow price growth, maybe even slight price declines. But don't think that prices will fall like below where they were last year, for example, it just might be that they shoot up and then they kind of stabilize. I think Truckee is also interesting, because it's in a very fire prone region. And that's something that also worries me is that people aren't taking into account these long term risks of housing and housing as a long term asset.
Aaron Norris 8:51
Do you get a sense that we'll have like a buyer's remorse phase, like when people experience their first winters in new markets, or they decide they hit the summer for the first time in Florida? And you're like, What do you mean, this is humidity I've never experienced, we're gonna have like a great rethinking 2021?
Daryl Fairweather 9:11
It's possible, I think that there will be a group of people who are very happy with their moves and never want to go back. And there may be some people who maybe got ahead of themselves. But I think overall, the trend has been for a long time, people leaving expensive cities for more affordable southern cities like Miami or Austin, and this pandemic has accelerated that. So, the fundamental reasons that people are leaving expensive cities are going to be there long after the pandemic.
Sean O'Toole 9:41
What's the behavioral like, you know, you hear that that piece a lot, right, that a lot of people are leaving this place for that place. But the places that they're leaving really aren't declining in value. It's not like there's a big declines in population, big declines in prices in these places that they're leaving, right? Everybody says, everybody's like, leaving California, yet California prices are pretty much up across the board, you know, condos in San Francisco are a little soft. But you know, it's not like people left. And so what's, what's the behaviors? What, what's happening to fill... those people are leaving. So, obviously some people are leaving, but other people are coming or can you explain that? Or do you have some thoughts on that?
Daryl Fairweather 10:22
Well, in some of these expensive California cities for a long time, there hasn't been enough development to keep up with demand. So, people can leave and go buy homes, other places, and you'll still have people leftover to fill all the houses that are there, just because there wasn't enough, there weren't a house to begin with, in terms of the reasons why people are leaving, like taxes are definitely driving people away from California. And just the very, the cost of housing, like maybe people who may have been longtime renters. And we're really hoping to become homeowners one day just gave up on the idea of becoming homeowners in expensive cities and are looking to buy homes in places like Salt Lake or Las Vegas.
Sean O'Toole 11:02
Right, right. You talk to people in Phoenix and Salt Lake and I just saw a little meme in California that said, in Texas, and I'm gonna forget it exactly. But it was basically like, you know, Californians please quarantine in place and stop coming. And so, you know, but what's interesting is, is, you know, you hear about all these places, it's like, it's California, like some sort of crazy, you know, people generating machine that just pushes people out elsewhere, but it's not dropping in population. I mean, it's not growing as fast, but it's not dropping in population, it's just hard to believe it can have this much outflow and this much impact in so many places, and without a real decline.
Daryl Fairweather 11:51
Well, California is an immigration hub, it's a port of entry for people coming from all around the world. So, a lot of people who are leaving are US citizens, and then they get replaced by foreigners. So, that's one of the reasons that California's population hasn't been declining despite how many people are leaving, they just attract people from all over the world.
Aaron Norris 12:14
Are you looking at 2020? Is there anything that surprised you about
Sean O'Toole 12:18
Aaron Norris 12:19
Well, with 2020? Does the COVID is there? Is there anything that has surprised you about the behavioral side of how we've handled a pandemic, specifically when it comes to real estate?
Daryl Fairweather 12:34
Um, I think what surprised me the most is how quickly everyone has, has changed their whole life plans. Like, I mean, I have an example of somebody who moved during the pandemic, but I think part of it has to do with how long it's lasted, it was just gonna, if it would just happen for a couple months, I don't think people would have like, reorganize their whole lives around it. But the pandemic has, I think, proven to people, there are alternate ways to live, you can work from home and be productive worker, those people have learned to value being close to family. So, I think it's just revealed a lot of people's preferences that they didn't know even were there because they never had the option to explore them. And that has caused a lot of people to just reassess their lives, including where they live.
Sean O'Toole 13:25
I think we jump right in here. And I actually we talked about like taking a step back first, and you're a behavioral economics, economist. And that's kind of why we're asking some of the questions we're asking. But let's just take a step back for a second for the for the folks listening in and talk to us about behavioral economics, and you know, how that might be different and how you might view the world differently than, you know, some other economists at similar companies, you know, that don't come from the behavioral economics side of things?
Daryl Fairweather 14:05
Sure. So, the basic difference is that behavioral economists assume that people are prone to biases, that they have the psychological factors that lead them to make decisions that may not be in their best interest. So, when I look at things like buying a home, for example, instead of just looking at the price, or how much money a person will make, I look at things like what are the psychological factors leading someone to buy a home. Are they buying a home, because they have this belief that buying home is a sign of becoming an adult which exists I think, in American society, or they're selling a home, are they like, attached to their home and kind of an irrational way where they think the value of their home is going to be more valuable than a very similar home next door. So, I think especially because buying and selling a home is something that people only do once maybe twice in their whole lifetimes. People are prone to make mistakes. And I found that really interesting because it's the most, one of the most important financial decisions that people make. And they just don't get very much practice at it.
Sean O'Toole 15:10
One of the things just among like, my personal millennial friends that I'm finding interesting is that when they decide to have kids, they decide they have to have a home before they can have kids like, like, owning a home is a requirement of having children. Like, it would be an example of a behavioral, right?
Daryl Fairweather 15:29
If you look at the way that homeownership has been trending and how the birth rate has been trending in the US, they do seem to follow each other that people are, are having to delay both. And it may be that, yeah, buying a home is a prerequisite for a lot of people to having kids, which definitely isn't. And that's, I think, an American thing.
Sean O'Toole 15:50
Right, it's a belief. Yeah, so, belief thing rather than a requirement for sure. Yeah, okay. So, I think that's just a good, a good piece. And you spend some time working, you know, and actually looking at behaviors within Amazon, if I'm right. And, and using that, not just for looking at markets and real estate and things like that, but also how to, like, better manage people and processes too so it has a wide area of applicability besides just economic outcome.
Daryl Fairweather 16:27
Yes, behavioral economics basically applies any situation where, you know, you think that people are going to follow one behavior. And they don't, you can probably analyze that using behavioral economics. But Amazon, I was looking, in particular, how to increase employee engagement. There was this issue where basically, they had increased performance of employees, but they were noticing that there was pretty high attrition, and they wanted to figure out why that was and how to basically make their employees happier. So, that was a pretty fun job just to make employees happier.
Sean O'Toole 17:00
Cool. So, you get you get better performance out of folks. But maybe you burn them out and you lose them. So, it doesn't really do any good in the long run. And so how do you.
Daryl Fairweather 17:07
Yeah, it's a very intuitive thing. I think most people to understand that, you know, happier workers are more productive. But sometimes people need to see that in black and white to actually make changes in that direction.
Sean O'Toole 17:19
So, can you reduce that to a formula?
Daryl Fairweather 17:22
Sean O'Toole 17:24
I thought maybe. Yeah.
Daryl Fairweather 17:25
That's, I think that's proprietary.
Sean O'Toole 17:28
Okay, we don't get to see the math behind it. All right. I think with that background, let's keep going. Sorry Aaron.
Aaron Norris 17:35
All right. Well, I follow you on Twitter, and I enjoy your perspective. And maybe it is that behavioral side, it always just seems a little bit different than some I follow a lot of real estate economists. What keeps you excited about this industry, real estate sort of seems so dry?
Daryl Fairweather 17:52
Like I said, I think it's, it's like the most important decision that most people will make in terms of their finances, and they don't have a lot of information going into it. So, it's just this really interesting case study and economics and behavioral economics in particular, where you can really see the whole economy and just this decision of whether and when to buy a home or to sell a home.
Aaron Norris 18:14
Does Redfin lean on you? I mean, with that perspective, everything from a web site designed to the process of paperwork. I mean, there's so much that can be applied here. Do they lean on you for that kind of insight into the data and the process?
Daryl Fairweather 18:30
Yes. And my team, I don't do it all. I have a team of economists, and we get asked quite a bit to weigh in on some of these economic issues that Redfin faces.
Aaron Norris 18:42
Interesting. Can you share any of the maybe the insights that you bring to the table that I don't know people wouldn't think about?
Daryl Fairweather 18:52
One thing that comes up a lot is when we try to understand how much of Redfin's growth is basically tail winds or headwinds from the greater housing market. So, we'll come in and try to figure out you know, how, where is the housing market headed relative to where Redfin is, what can we attribute to the initiatives that Redfin has done versus just what's going on in the housing market.
Aaron Norris 19:13
Interesting. Because Redfin is definitely one of the top 15 Real Estate websites in the country. I've been obsessed with iBuying for years. And I always have very much admire the Zillow and Redfin just because you had such online presence and everything from the web design and the customer trusting, the data that you provide on the website from the comparable sales to price. It's just, it's been very interesting to watch. And I was just curious how much involved with what you do it could you can touch so many pieces of the business, which is fun. Real estate is ripe for disruption too, how much demand are you seeing from Gen Z and Y entering to the real estate space pushing companies to become more digital or to be a lot more consumer focused in an industry that doesn't have, doesn't have the best reputation for being consumer friendly, we'll put it that way.
Daryl Fairweather 20:07
Gen Y is millennials, right? They are a very large growing part of the home buying market, there's going to be this wave of home buying demand coming from millennials reaching home buying age, now they're getting ready to have kids and they think they need to buy a home beforehand. So, it's definitely something that we think about, like, in terms of building a product and a service that millennials will like, and then Gen Z, on top of that, when they come down the pipeline and are ready to buy homes, I think that customers are going to come to expect a lot more, a lot better user experience. I mean, I just bought a home. And it was remarkable how easy it was to get all my mortgage documents uploaded this time versus when I bought a home five years ago. And I think that's what customers are gonna come to expect that you just go to one landing page, you upload all the stuff, you get a little checkmark that says whether it's been approved or not, or it's gone through underwriting or not, and your agent can see it in the same spot, like that's how it really should be.
Aaron Norris 21:09
Sean O'Toole 21:10
And so, I should know this, but where does Redfin fall right now on the whole iBuying side of things where you know, that allow that person to sell their house before they repurchase and, you know, smooth that part of not having to juggle two transactions at once. And you know, is there a vision there that Redfin has and where are they in on rolling that out?
Daryl Fairweather 21:34
We have Redfin now. And we're in quite a few markets. I don't have them off the top of my head, but we're all around the country. And we know we're expanding. And I think one of the differences between Redfin and some of these other iBuyers is that we want to offer the home seller whatever option works best for them. So, we'll present both the iBuying option and the traditional option, and the concierge option and really let the seller decide what fits their needs. And with one of the big challenges for a lot of people is that since it's such a seller's market, it can be stressful to have to sell and buy at the same time people aren't willing to accept selling contingencies. So, iBuying definitely has a place for some people.
Sean O'Toole 22:19
It allows them to come in with an all cash offer, because they have the knowledge that they're sell, there, the sales side will close for sure.
Daryl Fairweather 22:28
Aaron Norris 22:29
I like the concierge option. So, when the consumer thinks that their home is valued a lot more like, 'Well, let's bring in a contractor and see what it's gonna take to get rid of your 70s kitchen'.
Daryl Fairweather 22:40
Yeah, well, for me, I mean, I have two, I have a two and a half year old and eight month old, and like I just haven't been spending so much work on my house. And yeah, the idea of having a contractor and with two kids under two is just like a nightmare. So, I was happy to just get out of the house and leave it up to the concierge agent.
Sean O'Toole 22:59
So, you move first into your new place. And then and then put the other one up for sale after the fact. And it'd be interesting, you know, one of the things that I haven't seen, you know, much of yet is kind of that bridge financing kind of solution, right? Like, 'Hey, I'd like to get, I'd like to list this on the market and get the full price but I still need to go buy this other house first, I have this asset back here'. That worst case is worth enough, you know, to you know, if I've got the position and the difference, like, it seems like, you know, some options, there still exists to give people the best of both worlds.
Daryl Fairweather 23:38
Yeah, I mean, I know bridge loans exists, I'm not sure if they're going up or down in popularity right now, the big drawback I think, is that people don't know what their budget is going to be, right. So, if they take out this bridge loan to buy a more expensive home than their current home doesn't sell for as much as they thought it would. They're on the hook for that. So, I think it is a really stressful thing. And with iBuying at least you get the certainty that this is going to be the sale price.
Aaron Norris 24:06
Has there been any research on, on consumers moving to different markets? And if they're taking a chance? I mean, will there work, is working from home sticky? Is this the new normal? Or are they taking a chance just crossing their fingers hoping that they're moving and going to allow to stay? And if not maybe look at a new job? I don't know. I haven't seen any research on that.
Daryl Fairweather 24:27
We're actually filling a survey on that right now. And preliminarily, it looks like most people believe that. If they're working remote now they'll be able to continue to work remotely. And that makes sense just from an economic perspective. Like it only takes a couple of employers, leaders to make the call that work from home is allowed for them and other companies will follow suit because if they don't they don't remain competitive in the landscape anymore. And it's also this advantageous I think to the employer because they can hire people for a more affordable salaries and more affordable places, they don't have to just pay people to be able to afford to live close the office, I think there are going to be some employers who try to clock people back. But people will kind of self sort based on their own preferences. If you want to go the office, I'm sure you'll be able to find an employer who will want you there. And if you don't get to find one, who will be more flexible, especially if you're in a high demand field.
Sean O'Toole 25:25
I think the big stress there is on managers, like I've been a remote, I've managed people remotely for 20 years. And so, it's like, it's like, you know, it's no different, you know, pre stay at home and post at home for me, like, you know, there were less people in the office, you know, but it made it really made no difference. But for somebody who's used to management by wandering around, boy, their life changed a lot this year.
Daryl Fairweather 25:50
Yeah. And I think they'll probably see a big shift in their kinds of skills, you need to be a manager, or at least have successful manager of remote employees.
Sean O'Toole 25:58
Yeah, no, I totally agree with that. And so, the other side of that, right, we've got people predicting kind of the, maybe the death of cities, re-ruralization of America is one thing that I talk a lot about a lot. And what, what's your outlook for cities on the other side, right, the you know, we talked earlier about people leaving those, what's your thoughts there?
Daryl Fairweather 26:22
I'm pretty optimistic for there are only really two cities where we're seeing more people leaving, people leaving to a point that it's, it's worrisome that San Francisco and New York because they are the most expensive cities, and a lot of people have been living there just because they have to be close to the office. So, I think that's where we're seeing the biggest exodus of people. But those two cities are also like, very culturally important. And once the once the world opens up, again, people are going to want to, you know, go to Broadway or go to museums in San Francisco, they have a lot to offer. So, I think what the cities will have to do is pivot from being a basically an office space to being more of an attractive for people who want to live there for the lifestyle, and also attract tourists, because I know tourism is dead right now. But when things open up again, there gonna be plenty of tourists who want to go visit San Francisco and New York for those, for those reasons, cultural reasons.
Sean O'Toole 27:19
Yeah, agree. So, I also just read a, you know, Pete Flint, from Trulia, founder of Trulia, he has a venture capital firm called NFX, and they just did a really interesting article on NFX stands for network effects, and talks just basically about how to grow and scale, you know, business, so but they just did a really interesting Blog Post article or whatever, on the network effects of, you know, kind of key cities and showing how much the difference in growth and valuation etc, are of new business is in these city centers versus other places. And, you know, they're there, they were definitely coming to the conclusion that that's going to continue, right. And that these economic hubs will still be important, if you've given any thought to that.
Daryl Fairweather 28:23
Well, I think that, so places like Austin, for example, is in the news for attracting, you know, Tesla, or Oracle, there's a lot I mean, it seems to be an emerging tech hub. So, I think it's going to be very important in the future for the growth of a city like Austin, once one big employer in a certain field, you know, establishes themselves in a city, it becomes much more attractive for other employers in that same field, because they don't have to work as hard to convince people to move there, because the people they want to hire are already there. So, I think like, I think it will be still relevant, especially in the growth of some of these emerging job centers. And I think we're probably going to see more employers pay attention to where their employees want to work remotely. And there becomes a critical mass of people in one place, they'll open up another office so that they can still have somewhat of an office culture.
Sean O'Toole 29:16
Yeah, and we've done that in our Portland office, most of our Portland folks work from home. But we have this office where folks can come in and gather and congregate and, you know, meet for lunch and work on projects and stuff. And I actually love that model where, you know, it's flexible for the employee, but they do have a place to go if there's remodeling or kids or something going on at home that they need to get away from. So, I think that hybrid model has a lot of, a lot of potential.
Aaron Norris 29:50
You have access to such cool data. You don't have to wait for the census. You don't have to wait month over month in a lot of ways you're seeing things live as they have, has a happen that has got to be tremendously cool. I was particularly interested in asking you this question as people are relocating behaviorally, what makes a great city? Is it just a function of affordability? Is it vitamin D in the sun? Like, what? Why are people moving where they're moving?
Daryl Fairweather 30:19
Well, I think pre pandemic, a big driver was just where they could find a job that gave them you know, the kind of lifestyle they wanted. But now that the relationship between where you live and where you work has been tethered, people are moving more towards where they want to live for the personal preferences. So, for some people, that means moving to be close to family moving back to their hometown. For some people, it's moving to more sunny places. The sunbelt, has been a big attractor of people for a long time, and it'll continue to be that way. And affordability is a factor. But I think it really is this the bigger picture of you know, where, if you're, if you're, for example, raising a family, where do you want to send your kids to school? Are you going to be close to your parents or your in laws to help with childcare? Does the city or town have the values that you align yourself with all those factors are important to people.
Sean O'Toole 31:13
So, Redfin really made the name for themselves as a brokerage as being probably one of the strongest, you know, real estate search sites. Why is it that still no search sites allow you to search by any of these things that as a prospective home buyer, that's now looking to move I care about right, I can't search by what activities are in the area, I can't search by cost of living. I can't search by, you know, job availability in my career, like all these things that I think drive people to move, not a single search site offers any of those as search criteria. Any thoughts on that?
Daryl Fairweather 31:52
So, I think the way that most people buy a home is that they go down to a neighborhood or a city or neighborhood and then they start looking for the home that they want. And those factors that you mentioned, don't vary a whole lot at the neighborhood within a neighborhood. So, you can go and find the cost of living perhaps on a different portal, and then it just a lot less burdensome to integrate it into the listing website. I mean, anything that you put on the listing website cost something computationally. So, I think that's one of the reasons you can't find like literally everything. But at least on Redfin, if you go to our Redfin data center, we do have this thing that we developed called the job opportunity tool where you can type in your occupation, and see how much money you would have left over after paying for housing costs and energy costs and things like that, that basically your disposable income based on your occupation, in any Metro in the US. So, again, it probably wouldn't vary at the neighborhood level, but it does vary at the metro level. So, you can use that tool to kind of narrow down to a metro and you can go over to the listing website and look for houses within the metro.
Sean O'Toole 32:57
Super cool. I like that. So, one of the things that you do get to see right, as you've got a lot of people coming to your site and searching so you can actually answer that question authoritatively. Do people, when you have identify a particular user showing up to your site, are they only looking in one location? Or are they bouncing around the way my wife and I do from, you know, Austin, to San Luis Obispo to Portland to wherever you like, we're all over the place. We don't know where the heck you know, next is we'll always have a place in Tahoe, but I'm sure there'll be some other place we have at some point. And you know, but we're all over the place. So, is that something you, you look at and say, 'Wow, are people having a hard time figuring out location? Or does everybody that show up on our site know where they want to be?'
Daryl Fairweather 33:49
So, it's a hard question to answer because a lot of people browse Redfin for leisure purposes. And so it's hard to know if people are bouncing around because they really can't decide where they want to live, or because they're just curious about, you know, how much his home costs were my sister-in-law lives. For example, I'm just curious about what it would be like. What we do is that we will look at search activity for people who we think are serious based on their they've narrowed down, they're looking in one area a certain percentage of the time, and then we can identify people that we think are seriously thinking about moving from one metro area to another metro area, and we report out on that in our in our migration report.
Aaron Norris 34:32
Sean O'Toole 34:33
Tell us a little bit about that migration report.
Aaron Norris 34:35
Daryl Fairweather 34:36
So, unsurprisingly, migration is at an all time high, almost 30% of people are looking to leave their metro area for a different metro. And some of the top places are Sacramento. A lot of people in the Bay Area are looking to move to Sacramento. It's close by it's much more affordable. So, that's a big driver. Austin is another one Phoenix, these are kind of the areas that have been at the top for a while, but it's just been increasing how many people are looking to move to those places.
Sean O'Toole 35:08
And how often you guys publish that?
Daryl Fairweather 35:11
Sean O'Toole 35:12
Quarterly, nice. And it's just kind of the top locations where people are searching and you're able to tell where they're from based on, you know, like a reverse IP address kind of thing. You see the IP addresses are coming from, you know, roughly their location so you can see where they are and where they're looking.
Daryl Fairweather 35:28
Yes. Yes. So, you can click on a place like Austin, and you can see what percent of people are searching from the Bay Area, Los Angeles, New York, DC. Yeah, those breakdowns that we publishes quarterly.
Sean O'Toole 35:42
Aaron Norris 35:43
Do you see insights into, Is there anything surprising in the data when it comes to what they're looking for? Are the homes larger? Maybe more bedrooms? More space?
Daryl Fairweather 35:55
Yes. So, we looked into whether people are looking for more spacious homes and they are, I forget what the exact number is, but square footage is a bigger, is a bigger ask right now. I think prices are going up more for the bigger homes. We've looked at price point too where we've published a luxury report looking at the top 5% in terms of the Redfin estimate, how many of those homes are selling right now? What's the price growth for those homes and luxury home sales are just like through the roof right now. I think in Q2, they're up around 46, 42%. It was in the 40s year over year, so, just huge growth. And also second home sales are up a ton. They're 100%. So, some of those items that may have been like nice to haves before the pandemic or must haves because people are spending more time at home.
Sean O'Toole 36:45
Probably a lot more drive for more bedrooms, too, right? Because bedrooms can be offices.
Daryl Fairweather 36:50
Right, right. The home office is a, is a big ask, a nice backyard to who wants a private outdoor space. A nice kitchen because everyone's cooking at home.
Sean O'Toole 37:00
Yeah, no, that makes sense.
Aaron Norris 37:03
Interesting. Yeah, I know the builders have talked about for the last number of years, the average square footage that the builders were doing has slowly gone down. I don't know if that was a function on average of more condos being built or something. But I think the conversation is that that's expected to increase as well. In you, you have some I will definitely link to this article, you have some 2021 predictions on the Redfin website, maybe you can share with us a little bit about some of the things you've talked about, because you definitely talk about some things I don't usually hear.
Daryl Fairweather 37:33
So, one is that we think that home sales are going to increase more than 10% next year. This year, there was this big pause in the real estate market, the beginning of the pandemic, and then it shot right back up. And overall, we're going to end the year about 5%, higher home sales than in 2019, that in 2021, we expect that to increase another 10%. And that's driven a lot by low mortgage rates, mortgage rates are lower than anyone ever thought they would get. And that's making homeownership more affordable. And also, remote work has just encouraged a lot of people to make a move, they spending more time at home. They're reevaluating whether or not the place they're in is really where they want to be, or they're just living there because it's close to the office. And that's just driving a lot of people to move. It's happened this year, I think it's gonna continue even more so next year.
Aaron Norris 38:26
I think one of my favorite headlines of your report or something, I don't see a ton of people talking about you. So, the homeownership rates will reach 70% for the first time since 2005. And that looks so different because we're not doing higher loans anymore. So, you can't breathe and get a loan. So, that 70% seems a little bit more real this time.
Daryl Fairweather 38:45
Yeah. And so, one thing, again, with remote work is that if you were living in a place like the Bay Area, maybe you had a very good salary, but you still couldn't afford Bay Area prices. Well, now you can keep your salary, at least most of it and move to a suburb that's more affordable or move to a completely different city like Sacramento and Las Vegas, and homeownership is now much more attainable to you. And if you were renting before, then you become a homeowner that increase the homeownership rate. But there's also the secondary effect, where if you're renting, and let's say you were renting out a condo, and somebody else, that person that, that landlord is probably looking at the rental market right now and thinking like, I don't want to have to deal with finding a new tenant, I don't want to have to drop my rent by 20%, which is how much rent has gone down in Seattle. So, we're going to see a lot more condos converted into apartments. I think it's going to start with these kind of mom and pop landlords who were holding onto multiple properties because why not, home supplies are going up so much a lot of them are going to re-evaluate that and there's going to be more basically starter homes available for people living in cities because condos are more affordable than some of the single family homes.
Aaron Norris 39:56
You had some insights to, into and I thought this was interesting, expensive cities will invest in their cultures as a way to get people to come back. That was a really interesting take. Why even thought about that. So, cities are going to have to invest a little bit in making it attractive for people to want to stay.
Daryl Fairweather 40:15
Yeah, and just make it, I mean, people aren't going to stay just because that's what their job is anymore. And I think of a place like Paris, for example. And I don't think people decide to live in Paris, because that's where they're going to get their job, or that's where they want to start their careers. It's, it's because people dream of living there because of the culture because the food because of the art, and a city like New York has that going for it, too. And they can pivot from just being a white collar center to being more of a cultural center, because they have that going on for them.
Sean O'Toole 40:45
So, does that mean San Francisco is gonna clean up the streets?
Daryl Fairweather 40:49
So, I think they have an incentive too. I'm, I think they will, I think that's a smart thing to do. We'll see if they're able to do that, politically. I don't have much of a prediction there. I mean, obviously, homelessness has been something that has been a very tenuous issue for Seattle, San Francisco, some of these other cities, New York, too. So, I heard I don't want to be an expert there on how they would go about that, but I think I work towards is just making it a more pleasant place to live for everyone who wants to live there.
Sean O'Toole 41:22
You said something earlier, that's a very common perception, right? That lower interest rates make homes more affordable.
Daryl Fairweather 41:32
In the short term.
Sean O'Toole 41:34
I was gonna say, when I look back, it's like, you look at the GI Bill, right. And we saw the largest increase in home prices, you know, as a result, and I think all the benefits of 30 year financing and stuff were sucked up by home prices. And for those people that I guess, you know, can get the credit and the rest it, it doesn't really make a difference in their payment. And it artificially increases. But it really increases overall, it makes homeownership less affordable, right? Because you're gonna pay lower interest rates, higher prices, so same payment at the end of the day. So, really the same affordability once it, it goes into account, but property taxes are higher, insurance is higher, right, everything else is higher. So, everybody's cheering low, you know, interest rates. But I don't know, I'm more and more convinced that low interest rates have made housing a lot less affordable. What do you think of that?
Daryl Fairweather 42:32
I think if you look at the total cost of owning a home in the long run, it is a wash when interest rates go down, prices go up. And like you said prices also affect property taxes. But it does open up at least for 2021 this opportunity, this window when you know for the same price, you can get a more affordable home, especially for those short term changes, like we did an analysis it actually just went out today about when was the most affordable month to buy a home this year, based on what your mortgage will be. Yeah. And in most of the markets, it was actually November, even though prices have gone up the whole year. Because interest rates have been so low.
Sean O'Toole 43:11
Combination of low rate and price.
Daryl Fairweather 43:13
Yeah, there were a few months where.
Sean O'Toole 43:15
November closing or November going into contract?
Daryl Fairweather 43:19
Going under contract, or yeah, go under contract.
Sean O'Toole 43:22
Daryl Fairweather 43:23
Um, there was a few and a few markets, April was the best because I mean, that was at the peak of the era when the shutdown first happened. I think it was like San Francisco, Los Angeles, that, that was when it was the most affordable. And but there were some markets where it was January, but overall, nationally, November was the best.
Sean O'Toole 43:42
Ah, that's I wouldn't have guessed that. So, that's great. That's, that's a, that was a good piece of research. Was that with your idea?
Daryl Fairweather 43:50
It was a team.
Sean O'Toole 43:52
All right, that's nice, I give credit to everybody.
Aaron Norris 43:56
There's been some talk about Gen Z, this upcoming generation getting into homeownership a lot, they're interested in home buying a lot sooner than they're the Gen Y group of millennials.
Sean O'Toole 44:06
They are making too much money in their Robinhood accounts, they got to do something with it.
Aaron Norris 44:10
Your Bitcoin has gone crazy. Yeah. Is there any thought to why that shift all of a sudden?
Daryl Fairweather 44:16
That's interesting. I actually haven't heard that that Gen Z is more interested.
Aaron Norris 44:21
It came up at a conference last year at the National Association of Real Estate Editors, and I think it came from the builders that they had done a survey and Gen Z, one of their hurdles was that they thought they had to have 11% down, but that they were very interested in using a Realtor in the transaction. And they were interested in home ownership, more so than their millennial cohorts, which I thought was very interesting.
Daryl Fairweather 44:41
I mean, I think millennials were scarred by the foreclosure crisis. I think they're up until that point, we heard from our parents that homeownership was like the most safe investment. And then that logic just got totally abandoned during the foreclosure crisis. And I think a lot of millennials just started to think maybe this isn't the safest thing, why not put that money in the stock market, if there's a risk of that whole dies could go down just the way that stock market prices go down.
Aaron Norris 45:07
That's a lot of people don't talk about that, though. They just say, hey, they decided to over educate, they have too much debt. And that's why, but they don't talk about them watching their parents go through the foreclosure crisis is possibly one of the data points that cause them to hold on, so.
Sean O'Toole 45:23
Part of that student debt is their parents not being able to pitch in as much as they probably plan to because of what happened to them. So, I mean, that really made millennials feel it very personally.
Aaron Norris 45:35
Are the baby boomers doing anything different from real estate this time around? are they staying in place? Are they still net sellers of real estate? I don't know.
Daryl Fairweather 45:44
People have been staying their homes longer. And part of that is people, you know, avoiding I think senior living facilities, I mean, that's probably going to increase even more during the pandemic, it'll look prefer just to live in their homes, modify their homes, and people are living longer and staying healthier, longer. So, they'd rather just stay in their homes. Another reason, though, is just the way that the tax code is set up in a lot of places. So, in California, for example, your property tax gets set, it can go up by more than a certain amount, I think it's 2% a year. So, if home values keep going up and your property taxes don't, then you don't have this motivation to find a place that to move because then you're gonna take a hit, and your new property taxes.
Sean O'Toole 46:28
Interesting on the property taxes, like a lot of people go 2% and only goes up 2% a year. But, you know, 2%, more than inflation has averaged for the last 10 years right. So, in terms of like, the money being generated, even it just 2% for, you know, firefighters and teachers and stuff, it's, it's exceeding inflation. You know, at least for the last 10 years, there was period of time back in, you know, 70s and 80s. When that that Prop13 first went into account, or that wasn't true. So, the fact that, you know, real estate is inflating so much faster than inflation. I mean, how long, that's got to have a, it's got to stretch, you know, to a certain point not be possible anymore right? So, does, does it does real estate goes super flat at some point like, you know, in Japan, right, when they had their, their great debt problem back in the 80s. right. Home prices have been relatively flat since and they've had very low interest rates. Think 30, 40 year mortgage is now one and a half percent there. Is that is that our future super flat real estate prices, because we just continue to have them exceed inflation so much that it has to stop at some point?
Daryl Fairweather 47:48
I would love to get to that question. So, first of all, back to the property taxes. The issue isn't so much what California charges in property taxes, I think he can make an argument that, you know, property taxes should, you know, not increase, but I think what's, what are not increased more than 2%. The issue is that your property taxes are different if you stay in your home versus if you sell and buy a home, that's the same exact value as your current home. So, if you personally are looking to move from one side of town to the other side of town to be closer to your kids or something like that, you may not make that decision, just because you don't want to miss out on your property tax saving. So, it creates this distortion where people just stay in their homes longer. And there are as many homes available for sale.
Sean O'Toole 48:38
Just for just for everybody listening out there. That's only true if you're under 55. Now, if you're over 55, you get you get to move it with you.
Daryl Fairweather 48:45
Oh yeah they did change that. And I think they change it to that like, it used to be that you could pass it down to your kids. And now you pass it only to your kids if, no, I think if they live in it, they can't use it as like an investment.
Sean O'Toole 48:58
Right, right. Sorry. Back to, does it have to go flat at some point inflation versus yeah.
Daryl Fairweather 49:07
Yeah. So, again, back to Japan. So, I think Japan isn't really comparable to how real estate works in the US because there's this culture in Japan where when you buy a house, you basically tear it down and build a new house. They like to build custom houses. And I think that's one of the reasons that their home prices don't go up as much because it's kind of this. It's not a long term asset to them. It's like a short term asset and underlying land is still long term. But the house they view is more of a temporary thing that you build to your own taste. And the US that doesn't happen so much. And I don't think there's any reason that home prices have to fall inflation either. If anything, the fact that inflation is low is an extra reason that you would see home prices go up because the more people say, like people may not be spending it the more people save in terms of their disposable income. I'm not going to the movies every week, but spending money on Netflix, which is more affordable, or they're not upgrading their computer and spending extra $1,000 on it, computers are getting deeper things like that the more money they have leftover to spend on housing, and it actually can increase demand for housing. And if there isn't a commensurate increase in supply that will cause home prices to go up. There are a couple of asset or investments, assets goods in the US where prices have gone up faster than inflation, housing, health care, education, and all that everything that all these things have in common is that they're not just goods or services, they're also investments, that people put their money into it, not just because they enjoy them, but they expect to get a return on it.
Sean O'Toole 50:45
Good. And on. Shoot, I lost it. But I think there's a really, so, there's the one of the things that people have been talking about because of the pandemic and not being able to go to movies or not going out to eat as much as a savings glut. Right. And you were kind of touching on that, that you know, that people do have now extra money to put somewhere. And so, some of that is going to housing and, you know, I've heard talk of that is a trillion dollar savings glut, that when we get through this, it's going to come pouring into the economy. I mean, we may see a real, so, is that part of your, was that part of what you took into account in terms of this, you know, 10% growth next year, that some of that savings glut is going to come through and find its way into housing and be very bullish for housing next year?
Daryl Fairweather 51:33
It does seem like that people are keen to spend money on housing. I think part of that is what you said that people have more variables than money on other things. And so they're wanting to spend on housing, lots of people are also spending more time in their homes? When we're out of this pandemic, I think there's going to be pent up demand for some of those more experiential goods and services like travel or going to the nail spa or diner, or whatever. So, I think I haven't actually worried or not worry, I'm not too worried about it. But I think we may see a temporary spike in prices for those things. I apologize, you can hear my toddler he just probably got home from the park.
Aaron Norris 52:14
Is there any data that you wish you had as an economist that you think would make a difference in your predictions?
Daryl Fairweather 52:22
It would be great to have more fine breakdowns on how people are spending their money right now, like if I knew precisely how much money people were spending on travel or services before the pandemic, how much they aren't spending on that now. And we can kind of look at that at a broad level, like looking at the savings rate. But we saw what the savings rate was that there's a big spike when people got those 12 $100 checks. And then it's been winding down ever since Apollo being a smaller spec with a $600 checks that are coming out. So yeah, it will be interesting to know how much people are saving for their bills versus saving just because they don't have anywhere to spend the money.
Aaron Norris 53:02
Any other really interesting things that you're watching that would completely change the game for you in 2021?
Daryl Fairweather 53:08
I'm just excited about technology in real estate. I mean, there's been this big, I think people depend on it. People have been trying out new ways to buy homes, whether it's clicking through a 3d scan on a home, having their agent do a tour, video tour of a home. So, I think next year will be or in the years to come it will be really interesting to see how much more technology adoption there is in real estate.
Aaron Norris 53:31
Very cool. Well, anything else we should talk about before we talk about where people can follow your work? You do a lot of really cool stuff your team does.
Sean O'Toole 53:41
Well maybe just list off other I mean, the migration report I wasn't unfamiliar with. So, are there other key reports and things you'd like to mention folks to check out?
Daryl Fairweather 53:50
Sure, we do a luxury report every quarter. So, looking at just that top 5% of home values. We actually but we've changed it a bit. So, we break it out by different price points. It's not just luxury, but we do compare different price points and the home sales that are occurring there. We have a new construction report. So, tracking how much I mean new homes are being built. What else do we have? Oh, we have like hottest neighborhoods. We just published that report. And the top neighborhoods right now are vacation towns and suburbs. That's where people want to move. And they're moving away from the cities. Some of these places like I mentioned that are more desirable for their lifestyles.
Sean O'Toole 54:27
We get to swipe right, swipe left, hot, not.
Daryl Fairweather 54:32
Yeah, I think of like a better adjective in real estate. All we ever talk about is like real estate is so hot right now or.
Aaron Norris 54:40
Just doesn't sound as good like, 'It's so livable. The quality of life is amazing'.
Daryl Fairweather 54:44
Aaron Norris 54:45
How do you capture that? I will make sure to link to some of those reports. I follow you on Twitter. That's where I stay on top of a lot of stuff that you're specifically talking on.
Daryl Fairweather 54:58
@FairweatherPhD if anyone wants to follow me.
Aaron Norris 55:00
Yeah, and I'll definitely
Daryl Fairweather 55:01
We can talk about board games and real estate.
Aaron Norris 55:03
Did you say board games?
Daryl Fairweather 55:04
Yeah. That's one of my interests. You can actually see my collection back there.
Aaron Norris 55:11
I couldn't see that. I thought those are books. I have to ask, favorite board games of 2021. What should we be playing?
Daryl Fairweather 55:18
If you're into real estate and board games, you should check out Suburbia. It's this great game where you can build a town you can put down housing, you can build offices, and you can competitively design your own, your own town.
Aaron Norris 55:31
Guilty pleasure for me is SimCity.
Sean O'Toole 55:33
Daryl Fairweather 55:33
Yeah, that's a great game for fans of SimCity.
Aaron Norris 55:36
Oh, I can get lost for hours and SimCity I can't, I don't have it anymore on my iPad, because I would play it too much. It's ridiculous.
Sean O'Toole 55:44
I know, we're out of time. But that just reminded me a big, big one. One last big question, a realization, you know, what are you seeing in buying trends out in places that, you know, people wouldn't have previously bought? Are you seeing any of that?
Daryl Fairweather 56:01
Some of the, rural, rural home prices spiked well above urban prices, it was like rural prices go have the most sense of urban than urban. Just as people wanting to get the wide open spaces. I think that's part of just the pandemic. And maybe I think part of that there will be a backlash to it. Like I think people may be over indexed on the benefit of wide open spaces, when there is some fear of dense living at the beginning. But in the long term, I think that we will see people leave urban areas for more suburban places.
Sean O'Toole 56:33
Still, so, but so more bullish on suburban than rural?
Daryl Fairweather 56:38
Yeah. Well, maybe I think you'll see like the urbanization of the suburbs where you see more restaurants pop up in the suburbs, more shopping, things like that. And maybe the suburbanization of more rural areas. But yeah, I wouldn't, I wouldn't be too bullish on like, you know, places that don't have a ton of amenities.
Sean O'Toole 56:57
Okay. Okay, fair enough.
Aaron Norris 57:00
There's only stuff things you can do in a cornfield. Very cool. Well, thank you so much for your time, I'll make sure to post all these links so people can follow your work. And thanks for being here.
Daryl Fairweather 57:10
Thank you, this is a pleasure.
Aaron Norris 57:13
Thank you for listening to the Data Driven Real Estate Podcast, you can find show notes and links to some of the resources mentioned in the show at datadrivenrealestate.com. Click that join the community, and you'll be forwarded to the PropertyRadar community where you can ask questions about the current show and even see upcoming guests and ask questions there. We'd love to engage with you in the community. So check it out. Please don't forget to like, favorite, subscribe and share on your favorite platform where you're listening to the show. It helps us out a great deal. Thanks for listening, and we'll see you next week.
Transcribed by https://otter.ai