It is counter-intuitive that Web 2.0 real estate sites would continue to grow their audience and ad dollars while the industry “scrapes along the bottom” for years to come. The sites, though, still say they are growing.

“Fear, value-shopping, and curiosity are driving people in record volumes to our site,” noted Zillow CEO Rich Barton on the company blog. “The fact that we have never spent any money on advertising gives me tremendous confidence in our consumer-centric product vision and in the long-term leverage in our business model (free, open access funded by targeted, relevant advertising).”

The past few weeks, however, have finally let some of the air out of the tires –a delayed pattern also observed with automotive third party sites and dealers. The result: RedFin, a discount brokerage operating in eight markets, laid off 25 of 95 employees at the top of the month. And now, Zillow has laid off 35 of its 160 workers.

RedFin CEO Glenn Kelman said, on his company blog, that the company was doing fine until just after Labor Day. “We’ve fought like starving animals, and with some success: while industry-wide transaction volumes dropped 33 percent, we grew revenues by nearly 50 percent. Traffic grew more than 300 percent.”

Once the economic meltdown hit Wall Street, however, the “deals started to fall apart. As the stock market wiped out prospective down-payments, tours and offers dropped 30 percent,” said Kelman. “Transactions that were done came undone.” Kelman added, however, that he had no plans to close any of his offices.

Zillow’s Barton, for his part, said the company’s revenues are way up, but still fall short of profitability. He says he had “no choice but to securely batten down the hatches as we sail into a major economic storm.” He might eventually hire more ad salespeople, however. Meanwhile, Zillow rival Trulia, which has been running mean and lean, told Greg Swann of Bloodhound Realty that it has no layoff plans, and is looking to expand.