Zillow Says Real-Estate Market Not as Bad as It Looks

Newspaper headlines earlier this week reported a dramatic 19 percent decline in housing prices based on the Case-Shiller index of real-estate prices.

Stan Humphries, writing on the Zillow blog, notes that Zillow’s price index didn’t fall as much as Case-Shiller.

The difference is that Zillow’s index does not include foreclosures, but Case-Shiller does. Humphries notes that a staggering percentage of the transactions being recorded are foreclosures. In Las Vegas, 79 percent of the observations going into the Case-Shiller index are foreclosures. In Phoenix it is 68 percent. In contrast, only 11 percent of Boston transactions are foreclosures.


Conor - Ireland

And so what if they include foreclosures? Are these not real estate transactions which Americans are all free to be involved in? No?

AlleyGator

According to Zillow, distressed properties sell for less than non-distressed properties. Excuse me while I say, "Duh".

Dan

When a home slips into foreclosure does is stop being a house? According to Zillow it does.

Witty Nickname

I don't know if the Case-Shiller system factors in condition of the house or just neighborhood / sq. footage,etc. I purchased a house recently and looked at foreclosures as well as homes owned by the seller. The foreclosures were dumps. They either tore them up before they left, or they manager their money as well as they take care of their home.

I really don't care as much about what houses in my neighborhood sell for, but how much my house is worth. I realize the two TYPICALLY go hand in hand, but with the market weighted towards foreclosures I could see how the numbers would be skewed.

Alistair

Even still, Zillow can be wildly wrong: it forecasted that our house (in the Boston area, so fewer foreclosures) had gone up in value since we bought it in June 2007. Mortgage appraisers say it's gone down by 20%. (My untrained look at comps and the market says it's gone down, but by more like 10-15%.) That's the difference between having more than enough equity to refi, and being in serious negative equity...

Irene Dorang

Zillow appears to not address the point of whether or not lower priced homes make up a higher number of foreclosure sales to begin with. If this is the case, at least part of the reason that non-foreclosure sales sell at higher price ranges is that those homes have an overall higher market value from the start.

Instead, Zillow states that "you're also looking at the depreciation of homes that were previously in the set of homes making up the black line, but went into foreclosure, thus becoming part of the set of homes making up the red line".

That's actually a big assumption, and I don't see any data in their article to back that up.

ClydeK

These indexes also OVERSTATE housing gains by failing to compensate for renovations. I lived in a renaissance neighborhood where we all fixed up our houses. They used to cost $40-70k; now they sell for $300-$600k. When we sold, it looked like our house price tripled when we sold our house, but I added up the cost, and we didn't make a penny for all of our work over seven years.

Aiboe ERS7

What zillow should exactly do is ZIP IT! Just because a house sold under a foreclosure does not count as sales? A sale is as sale and a house is a house. It is so ridiculous of zillow to pretend to exclude these sales when an individual only needs to log on to zillow's website and look at the valuation- zillow's own estimate is a total joke! No, actually, it is insulting!
But really folks, when I ned a good laugh, I log on to zillow and just read their valuations.

Craig

Zillow's numbers do not seem to reflect reality. My mother-in-law recently died and according to zillow her house is worth $197,000. According to the appraisal that came in yesterday it is worth $115,000. Looking around the neighborhood, it is pretty obvious that the zillow numbers are way off.

Better_By_Design

Ignoring foreclosures in valuation is a tactic being employed by my local government; assessment notices are being delivered currently, and people are surprised that overall home prices have only gone down 2% in 4 years - considering retail prices have tumbled around 15% over the past 2. To some degree this is an effect of the rise in 2004-2006, but excluding foreclosure data and calling assessments "fair market value" is misleading at best.

Keith

So if you are buying a non-foreclosed home, Zillow is saying it is probably still overvalued?

ped

Statistics are a big challenge and this once again illuminates it. Value -- definition -- willing buyer and willing seller -- duh... foreclosure is something else, seller not too willing, and you do not get a conventional delivery of a clean operating house -- you may get a disaster... hence --the bargain....
Two points --
one this is a very regional issue --48% of the foreclosures are in 4 states - CA FL NV AR -- These 7 MSA's had materially higher runups in value - and hence bigger fall-offs
Two, the general press coverage is pathetic -- bad on the way up and bad on the way down. Boston Globe trumpets "18% decline in values last month" finally corrects it after prompting as it was 18% last 12 months -- and they do it wrong every month.. further their data is the monthly median sales data which means NOTHING.. every house could be rising in value-- but if the mix changes the median declines -- say, thats real accurate.
They then the next day literally ignore the Case Shiller data which shows a 7% drop in Boston --which noting details above means conventional homes sales in decent neighborhoods are likely flat.....
The other interesting item is demographics -- and rarely do you see it discussed. over the next decade big boom in the 21 to 28 cohort-- driving demand for apartments , then condos, then homes. Don't forget the country is inexorably growing about $3mm a year

Read more...

Sam

Zillow is also apparently in the business of selling rose-colored glasses.

CS

As a Phoenix resident of a neighborhood that has fared better than most in the metro area, I have to agree with the misrepresentation of home values that Zillow perpetuates.

I know without a doubt that my house would never sell today for what Zillow says it's worth- not with that $70K foreclosure behind me, and the other handful of them throughout the area.

It's all crap.

mbp

responding to #4: The Case Shiller index is based on data on the exact same house selling on two (or more) different dates. #7 has a valid point in that improvement expenses which are a material part of the value can throw it off.

Ralph DeLuca

It seems that real estate in or near the major cities are not down that much in price. I live in Madison, NJ, which is about 25 miles outside of NYC, and home prices are only down about 10% or so. I think the mid west and vacation areas that are full of mostly second homeowners are hit much worse. Anyone in or near other major cities feel the same?

Ralph DeLuca

Madison, NJ

Everson

... Zillow relies on public real estate data from local government computer databases -- so, at best, it's only a ball-park estimate (within ~10%) on house values.

Zillow does not give specific "appraisals" of house value -- ya gotta hire a local appraiser for that.. and even those professionals can only 'estimate' current market price.

Local appraisers rarely agree 'exactly' on a particular house price -- so why would anybody expect looser Zillow and Case-Shiller values to closely agree ??

Zillow never physically inspects the houses or neighborhoods. They use basic facts (like square-footage, # bathrooms, recorded sales price of similar homes, etc).

Zillow is a useful, very convenient, and FREE tool but a lagging market indicator -- due to the slow & variable process of local county governments updating their real estate records. Rapid market changes aggravate that problem.

Jack Neefus

Zillow's point is well taken. At least in Maryland, the real estate market is not as bad as some of the statistics make it out to be.

When trying to estimate the price a house will sell at, mixing in an increasing number of foreclosures can seriously distort the numbers. You want to look at prices that buyers are paying for retail properties in good condition.

I bought two houses in Baltimore for $80k a few months ago that are worth about $160k and am preparing to put the first one on the market now without a significant discount. Retail buyers could theoretically get a better deal by buying a foreclosure and doing renovations themselves, but few have the confidence or resources to take advantage of the opportunity.

Zillow is not always correct -- in my experience they're likely to be a little on the high side. But they do provide a good guide for changes in the market, especially in unfamiliar areas. And they provide sales prices of individual homes so you can do your own estimate.

Read more...

Jimmy Cyber

ZILLOW was WILDLY wrong during the BUBBLE.....and now WILDLY wrong in the aftermath.

Heres my take....its a GREAT time to buy. I bought my hose for $300k. If I had that same $3ook in money market (yea, safe) it would make 2% a year. 2% times 300k is 6k....add 5k in taxes and thats 11k. Take that divided by 12 and its $916/month....what kind of rental unit could I get for $916/month ?

Look at replacement cost....my home is on 80k lot (its over 1 acre) and its 3k square feet. Take $220k divided by 3000 SF....thats $73psf.....YOU CANNOT BUILD new for that...PERIOD.

These are once in lifetime prices.....
KAPEESH.

Freddy

Hmm, notice how Zillow is now forcing you to go to a pay subscription site, foreclosure.com, to get any information on foreclosures? Guess Zillow needs to monetize itself toot de suite...makes sense given the "what's the business model?" aspect of the site. Web 2.0 = tech 2000..."who will be the next to fall..." Their pricing is also way high...in Chicago Zestimate for condo, 192,000, purchase price $86,000 and falling.???? They are amazingly still using pricing from pre 2008 sales in their model..nuts o' matic. Buy now people...but at least in Chicago never offer more than 75% of comparable same year sales. Prices still have 30% to fall in the loop/S. loop, don't be the sucker who drives new off the lot.