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.
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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.
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.
So if you are buying a non-foreclosed home, Zillow is saying it is probably still overvalued?
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
Zillow is also apparently in the business of selling rose-colored glasses.
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.
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.
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