It comes as no surprise to regular readers that I am extremely critical of several aspects of the online real estate business Zillow. At Akubi's request I have set for later today a comprehensive critique but before all the bad how about some good:Homeowners True Believers: 77% Believe Their Homes Held or Increased Value in 2007
"This survey reveals that despite the data to the contrary, people either aren't paying attention to their housing market or are in denial about their own home's value," said Dr. Stan Humphries, Zillow.com vice president of data & analytics. "This likely reflects the fact that most Americans have not realized home-related losses because they're staying in their homes. Even in declining markets where a greater percentage of new homeowners are underwater on their mortgage, it's important to remember most people are not really affected by declining values unless they absolutely must sell or need to immediately refinance or withdraw equity. This has contributed to the healthy investment intent, particularly in home upgrades, despite the downward trending markets."Ahhh, the American consumer, bless their wallets.
65 comments:
Was Zillow the first purveyor of on-line RE fables?
I believe they appraise my property at $625,000, when in fact it's worth $225,000. Not Joking.
What's wrong with people not realizing their home has decreased in value? Where I live people buy a house, get a fixed rate mortgage and then live there for decades. Isn't that the way it used to be and should be? We care as little about how much our home has decreased in value over the last year as we do our cars or the clothes in our closet. We have better things to do with our time. If people rely on their home going up in value, that's unfortunate.
Zillow is what it is. It is a tool and nothing more. A hammer is neither good nor bad and describing all the bad things people have used hammers for does not make the hammer bad, nor the individuals who created it.
Just my 2 cents.
Ever hear anyone admit they lost money at a casino? Unless they hit big, it's always "I did OK" or "I broke even."
Zillow note--few are aware how much loan underwriting depends on computerised databases just like Zillow's. However, it's far easier to spot errors in the latter than the former.
Zillow, Trulia, Property Shark, etc. are still in their infancy. Unlike the government-protected MLS, the private services will go out of business if their info turns out to be useless.
What's wrong with people not realizing their home has decreased in value?
What's the harm? About a "zillion" things. Planning for retirement, inability to change jobs out of area, the wealth effect impacting savings and spending, tax consequences, on and on.
I know we have a lot of denial and "other people not me" in this country, but I simply cannot believe nearly 80% of the population believe their homes haven't lost value – any random conversation at a bus stop or office water cooler would suggest otherwise.
Note: This online survey is not based on a probability sample and therefore no estimates of theoretical sampling error can be calculated.
I think what PJ is getting at is there's nothing wrong with people not knowing both the over and under valuation of their homes, as reflected in ephemeral zillow valuations.
Believe it or not there are people out there who still think in terms of housing values closer to their historical average values. Those people, almost by definition, do not live in "hot" zones. They still count for something (and they vote)
Okay, my predialian manse is like 4 sigma atypical (like its owner) but the big z has it at the same price Feb 08 as Oct 06 and Aug 05 and Apr 05. In Aug 05 I probably could have gotten 30% more and today probably 10% less.
That's why I agree that z is at best useless at this point. I still maintain that knowing the proper value range of your assets and liabilities is sound financial planning. If your house has doubled in value and you don't live in California you need to plan for a huge tax increase next reassessment. If it has lost substantial value, even if you are staying put you are still leaving money on the table by not asking for lower taxes. And if re-fi rates suddenly break down for a short period it is important to know if you can qualify and act quickly or whether you need to plan to bring cash to the table to get the lower rate. In short, it matters.
What rational person wouldn't want to know the value of something they own, especially if they also owe a lot of money to the bank on it. Even more so when it determines how much tax they pay.
Even if you bought a house to live in, and have done so 20 years and plan on staying there at least 20 more. You might change your mind if you found out that $75,000 house you bought would now fetch $7 billion on the market and you could retire back in the Italian homeland (or whatever) by taking the suckers money.
If the house is now worth 50% of what you owe the bank, that knowledge is important and should impact your choices - whether you can afford the payments or not.
Well, then stop bitchin' and do something about it --tell Zillow. Zillow depends on outside input for QC.
Anything that gets RE info out of the clutches of realtors is good thing, as is competition.
NO! Do not tell Zillow. Data has value. Zillow is attempting to capture that value (good for them). You need to be compensated for your efforts. Don't get fooled into working for Zillow for free.
So.. where's the favor?
S, "What rational person wouldn't want to know the value of something they own, especially if they also owe a lot of money to the bank on it. Even more so when it determines how much tax they pay."
The problem that got us where we are is that somewhere along the line people started thinking of their house as an investment, like buying a stock, instead of thinking of it as a smart way to avoid rent and have place to live. Tracking the price every day, taking money out when it goes up, panicing when it goes down.
If I buy a clasic car that I don't need, with the intent to sell for profit in the future or borrow against it as the value goes up, then it would be important to me to frequently track it's value. However, it makes no difference to me what my 2004 Toyota, that I plan on keeping for 5 more years, is worth until it's time to sell. It could be worth $20k right now, or only $5K. I don't know because it makes no difference to me either way. I need my car; it's not for sale. Now, purhaps my Toyota is unusually rare and spiked up in value to $100K and then a year later came back down. Then yes, your right, I'm a fool for not paying attention and making a hefty profit. But, if all cars rose in value to $100K then if I sold it I would still have to buy a replacement at a comprable cost.
Most people I've found don't count their primary residence as part of their financial planning. You have to live somewhere, and unless you've saved so little that your retirement requires either a reverse mortgage or selling your home to get your equity out and either rent or live with your kids, the value doesn't matter to you. And even then, the value only matters at time of purchase or as you get closer to selling.
S: "If the house is now worth 50% of what you owe the bank, that knowledge is important and should impact your choices - whether you can afford the payments or not."
How is your ability to afford your payments determined by the current value of the asset? True, property taxes will go up if the property value increases, but you can either afford the payments or you can't and property taxes are only a portion of your payment so even a 50% increase in property taxes will not increase your payment by that much.
If your home price dropped 50%, it's unlikely property taxes will go up much, if at all. Your payments would be the same, or less.
When you first drive a new car off the lot, you're upside down on you're loan and owe more than it's worth. Should that make you freak out as well.
The problem is that many people bought more house than they could afford in anticipation of making money on appreciation. That's speculation with borrowed money and is not a good idea unless you know what you are doing.
PJM -
I think what "S" meant by knowing the house is worth 50% of what you owe being important is that at that point, it would most likely make sense for you to walk away. You'd be throwing money away to keep paying on the house.
Rent somewhere instead.
Property Flopper-
True, I guess we do live in a society now where if you make a mistake you just walk away and leave someone else holding the bag. At least for me, I pay for my own mistakes. Call it old fashioned.
My only point is that if you purchased a house to live in with a fixed rate mortgage that you can afford, the intra-day price fluctuations of the house make little difference to you.
As far a walking away if you owe more on the asset than it's worth: If you buy a new plasma TV on credit from Best Buy for $3000 and after a year you stil owe $2500 but the value of the TV is only $500 used, do you just drop the TV off at Best Buy and stop making payments? How is walking away from a mortgage obligation any different?
A couple of posts have hinted at this, but the real fixation with home prices is simply the Housing ATM Effect. Since the house can be borrowed against, homeowners have viewed home price increases as credits to their "accounts", and as home prices have risen have taken out money accordingly. The interesting fact here is that they refuse to recognize debits against that same account when home prices drop.
And I've been thinking about the continued renovation binge (especially since some in my family are undergoing some significant home renovations.) One major reason is that the standards are higher. Just like cars, where one car per family is no longer good enough, the old laminate kitchens and plastic fixture bathrooms are no longer good enough. In some cases we were "behind" on renovations and there have been some badly-needed fixes made, but in others it's simply a matter of people living at a level of luxury that doesn't really make sense (e.g. the $3000 stereo in the $500 car.)
Is this the same survey showing that 90% of Americans believe they are above average?
Zillow does not even know my oceanfront home exists. Same with a couple of my nieghbors.
Don't like the war and want to help the economy?...
just walk away.
BTW I like zillow for the pretty views linked with the other data like taxes paid, date purchased etc. It helps me support cranky opinions about prop 13.
Zillow's pretty wierded out right now about the value of my home. I bought it last Febrary, and I'm pretty sure the value has remained flat since then (I live in Oregon, one of the last bastions of not-yet-declining home prices). And through maybe October, when I last checked Zillow, it agreed with that. However, I just looked today and it's decided that my house has suddenly gained 9% in value since last year. I am pretty sure that is not the case. Especially since it thinks that a similar house down the street is at about my original purchase price (while those owners have it for sale at almost 20% higher, and it's been languishing on the market for a whole year).
Hey Rob,
One of your posts from CR is the opening quote on an inteldaily commentary.
It's All Downhill From Here, Folks
Remember my first 50 cent peice?
Heck I married her....
Bada-boom!
Man there are some stuborm stupid people out there.
Same ilk as those that invest bigtime in beanie babies...
But don't worry. the free market will re-educate them soon enough.
h.
Rob, I guess that ignorance is bliss. Having seen real housing price data and comparing it against Zillow's #s, I just cannot put any faith in what Zillow says a property is worth.
Historically, you've never been able to show that your home went up or down in value in one week. Yet Zillow is attempting to get the public to believe it does, much like the stock market. I appreciate the effort of Zillow. But since no one is paying for the data, you're getting what you're paying.
pjm, I appreciate the thoughts you have about really caring about the price of your home. If more of the country felt the same way, we definitely would not be in this mess. California has always been the land of milk, honey and big dreams. So please forgive us on the left coast for screwing things up.
Olivia W., what area of Oregon do you live in? Please do not believe the media's hype of Median prices going up. With the housing supply in the Portland Metro area reaching 8-12 months (depending on neighborhoods), you must be in the right neighborhood to see any stability of prices.
We bought our house in 1995. I never paid attention to its "value" except when I got the tax statements in the mail. Increasing appraisal values meant just one thing to me: higher taxes. Christmas is tax time, with county, school and MUD taxes totaling about 3% of the house's appraised value.
It never occurred to me that I could "free up" this equity for an RV or a pool. WTF would I do that? I want this monkey off my back ASAP. (The fact that it was illegal in Texas to "liberate" this "equity" up until recently may have had something to do with it.)
In my area, Zillow is off on the high side by about 20%. When I Zillow my modest shitshack I can only laugh at what they claim it is worth.
I have two neighbors from California who have moved here in the past 6 months. I wish they were still bringing their magic housing dust to sprinkle over my neighborhood, but I think this is the end of the housing bubble road. Even with the influx of California refugees, prices have been flat since 2001. I'd like to see a massive price bubble so I could sell and make a huge profit, then sit back and wait a few years and buy something better at 50% off. That would be cool.
Lou,
I want a f-ing pool with big, breaded koi and stuff! What's up with avocado anyway?
In other news, I feel I'm really cornering the porn market with The Moneyshot blog's endorsement of Nietzsche Koi, a somewhat philosophical subsidiary of Zillow book and fisheries and such.
P.S. Dadanoias rocks
Sac Re Agent - I'm in a Portland suburb that's been doing fairly well. But all signs are that things are actually starting to trend down here, too - don't worry, I don't imagine that I could turn around tomorrow and sell for lots-a-money. That house down the street is a cautionary tale. The owners bought it in December 2005 intending to do a flip (it's a 1960's ranch, which probably did need updating - mine does!), and they put it back on the market about 6 months later for almost 25% more than they paid for it. When I bought my house in Feb 2007, I paid what turned out to be almost exactly the same amount as that house sold for a year earlier (my house is slightly smaller, but has a bigger lot). At that time, I looked at that house, too, but immediately knew it was way overpriced. They knocked about $20K off their price this past summer...with practically no resultant activity. Now they've put the house up for rent (for about market rate, but which won't cover a standard 80% mortgage on that amount, let along taxes etc). For an intended immediate flip, it's been a pretty lousy investment. Unless they decide to go long-term and hold it as a rental, they will never make a profit.
Dawg,
Are you aware of any time in the past 30 years or so where the economy was in a similar situation? I mean, consumers overextended in their credit card debt, falling housing market, credit crunsh, etc.?
I'd like to have an idea how bad things could get, and for how long.
Thanx.
Harish, historically, the housing market has seen some very ugly declines. But this last run-up of housing prices has made many people to feel entitled to use their house as an ATM, pulling out whatever they could and spend it without much thought. Not only is the piper calling now, but lenders of consumer credit are realizing the lack of wisdom in extending such credit in the first place.
Thus they are tightening their requirements to lend money.
So we're now seeing record # of foreclosures, taking many people out of the housing market for the better part of the next 5-10 years minimum. Couple that with their difficulty in getting any financial loans, and the economy will be sputtering at best for awhile. As cold as it sounds, I wish for these ARMs to reset as soon as possible and let's reach the bottom in the real estate market.
So timewise, my guess is another two to four years before we start seeing consistent positive economic news.
Thanks for the reply. Would that be 2-4 years to see consistently better news also in other areas of the economy, not just in housing? Four years seems to be quite a long time for a recovery in the markets.
Two to four years may, unfortunately, be a bit optimistic. Some serious analytical work of the housing market is suggesting double that. Japan's recession was ten years, and we seem to be moving in the same direction.
That said, there will be sectors of the economy that continue to do well, like energy and farming. The problem is that most of us don't work in those sectors.
Here is one for a chuckle:
http://sfbay.craigslist.org/pen/wan/570896729.html
Ad on CraigsList - a flipper who doesn't realize they've already lost. Looking to borrow 1.3mil at below market rates.
Severely clueless, but I suspect (from the desparate tone) that they are about to meet an clue head on.
If the recession gets real bad and affects emerging markets they may sell off drastically like in the 90's. At which point I would not want to be in energy or farming as an investment. But I am personally hoping for one more great buying opportunity. I think farmland is a bubble. I bet oil will look like a bubble if economic contraction affects demand.
Personally, I believe that seeing all of the excess and bad decision making in western economic systems that it probably is even worse in emerging markets. It all looks great going up, but crumbles quickly when there is contraction.
PV, I tend to agree with you. I'm hardpressed to see real estate turning around in anything less than five years. Many markets throughout the country were advanced through the growth of real estate values in California.
Regarding other financial markets, there are always so many variables in play, I can so some positives happening but no huge growth. And with dimwits like Casey spouting off about pennystocks and gold, I can only wonder where his kind will be looking for their easy fortune and how many others will follow.
On a side note, I just wanted to take a moment and thank you Rob for your blog. I might always agree or understand all of your posts but I enjoy it and it's participants.
What type of investments, of the type held in a 401K, could be considered defensive if indeed we're facing an economic downturn of that magnitude?
I have converted my investments outside of the 401K into cash, and am waiting for a better time to enter the market. However, I can't convert my 401K into cash; I have to keep it as mutual funds from Fidelity.
Any input would be most appreciated. Thanks.
Rob
Might want to check out those Cape Cod abodes. Evidently a 900 ft LNG tanker is adrift 35 miles off Chatham and we are about to get hammered by a big storm. Word is it is full the brim coming from S America for Boston.
May lose a LOT of housing stock in 1 big @ss Will E Coyete type boom!
h.
@H Simpson
May lose a LOT of housing stock in 1 big @ss Will E Coyete type boom!
Sounds interesting, but actually it won't go boom. It is a fuel that needs oxygen to burn. If it is released into the air, it has to mix sufficiently with air and at the right proportions near stoichiometric ratios. Natural Gas is largely methane (CH4) which is generally lighter than the surrounding air. CH4 requires 2 parts 02 to one of methane to burn quickly. Air is about 21% oxygen, therefore 10 parts of 'air' per part of methane need to mix. A lot of the movie 'fuel explosions' are pure BS, aided by a few pounds of dynamite.
That being said, releasing a large portion of liquified gas on a body of water may be interesting. It may make its own small iceberg. The fuel may touch off above the wreck and may not even touch the wreck because oxygen needs to be present to burn. This might have the effect of swamp gas (oddly enough.. methane) over a small iceberg. Swamp gas often makes ghostly light over swamps as it touches off.
This has contributed to the healthy investment intent, particularly in home upgrades, despite the downward trending markets."
Yeah, but I'm betting the vast majority are going to get severely pissed when they find out that they can't get that home improvement money back out at closing time.
harish,
A money market fund or fixed contract fund would be an alternative to cash. Most of the better money market funds (Vanguard, Fidelity, etc.) have little to no exposure to mortgage-backed securities.
That said, you should also keep in mind that market timing doesn't work.
Overall, though, values in the Bay Area are definitely down for the year, according to Zillow. Home values fell 6.7 percent in the metropolitan area that includes Alameda, Contra Costa, Marin, San Francisco and San Mateo counties. That's a steeper drop than throughout the nation, where all homes are down 3 percent year-over-year, Zillow said.
As I suspected, note that Zillow has recently added new algorithms.
So where's Duane's favor request?
Hey, maybe we can all convert and try this stateside:
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=513872&in_page_id=1770&ICO=NEWS&ICL=TOPART
Woohoo! Obama had the balls to tell Exxon to shove it up their a$$ in his speech this evening!
Obama had the balls to tell Exxon to shove it up their a$$ in his speech this evening!
Obama is about to jump the shark. He is right about where Ron Paul was back in September on the annoyance meter.
Exxon is good and produces things of value that people want and need. Exxon creates money and jobs and pays tens of billions in taxes. Barack Obama creates, um... hope and change. Or something. He's handsome and speaks well, so it's all good.
Hey Rob, are you dead or what? Have Casey's defense attorneys subpoenaed you and Duane and LossMit? It's unusual for you to be silent this long. I need a fix.
@Lou,
If you can't see the connection between Exxon, Iraq and the general state of the f-ed up economy in this country, I don't know what to say...
Be patient. Rob Dawg's out lengthening his driveway. Due to the shortage of non-illegal laborers in Ventura, he has to do all the work himself.
"If you can't see the connection between Exxon, Iraq and the general state of the f-ed up economy in this country, I don't know what to say."
Why don't you spell it out for us one more time...be sure to tell us what the Savior will do about it.
chickenlittle,
Here's a start: FACTSHEET: American Enterprise Institute for Public Policy Research, AEI
Obama studied Nietzsche well.
@Akubi
That link seems all about global warming. Please link me to the specifics about Exxon and Iraq.
BTW, I didn't hear your savior's remarks tonight but I think it fair to say he chimed in with Hugo, oder?
"Obama studied Nietzsche well"
Only if you mean how to exploit the politics of "ressentiment".
Sweet deal.
@Mr Dawg
I sincerely hope your absence is not family emergency-you are missed.
Rob is busy sucking up the fame and glory at Calculated Risk, forgetting where his real job is (e.g. keeping us amused).
Looks like he is getting a case of Serinitius. :>)
Sorry for the tough love Dawg, but we are getting close to intervention time.
We don't want to see you tapping out the credit cards now that the banks will not let you use that abode as an atm...
the next fraudcast with MLP, Duane ang gang may just be for you..
h.
Jezz, can't I take a break from my accidental job? Everything is fine. I went skiing in Mammoth, I gave up drinking for Lent, I got a iPhone. The damn Honda mower didn't start which led me down a rabbit hole. Freakin' float bowl gasket. Here with all my engineering background and I was caught by this? I am also struggling with a g*d*mn new countertop in the kid's bathroom. Granite and cool new faucets but nonstandard dimensions. I'm also doing 2007 taxes because some nosy college on the East Coast wants to give my kid a scholarship maybe. They don't say.
Okay, eenough excuses. I promise to get back on track. no worries mate. ;-)
Don't tell me you took out a HELOC for those granite countertops . . . and I need to break the news to you right now that you will not be able to charge the kids higher rent just because you upgraded the fixtures.
peripheral visionary said...
Don't tell me you took out a HELOC for those granite countertops . . . and I need to break the news to you right now that you will not be able to charge the kids higher rent just because you upgraded the fixtures.
Okay, confession time. Yes, I have a HELOC. -0.25 Prime. Gawd luv the irresponsible Fed. The HELOC exists for the sole purpose of rehabilitating the property. So far, roof, office and landscaping. No cars or vacations. Combined LTV still less than 30%.
Yes, fuggin granite. The Contractors Warehouse had the slabs for $117. The fixtures $120 for the two. $30 in glue/hardware. Had I gone formica the cost would have been about $50 less but I'd have to had cut two ovals and two faucet holes. Wicked bitches those. Don't give me no crap. I got granit in my office too. I use chemicals and often solder and the surface cleans easy.
The rugrats don't pay rent. They aren't old enough. Soon though... ;-)
The young ones don't turn cash flow positive for thirty, forty years at least, sometimes never. But if and when they do, it takes a lot of pressure off the retirement worries. Myself and my siblings are doing well enough that, while my parents won't quite be living on easy street, money to pay the bills is just a phone call away.
Anyone else get junk mail from Fidelity regarding Magellan? I guess it's a big deal because it's open again.
This lack of host content is totally unacceptable!
Hey, maybe we can all convert and try this stateside:
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=513872&in_page_id=1770&ICO=NEWS&ICL=TOPART
2:38 PM
I think I have mentioned this previously. All that has happened here is that the lender didn't contact the borrower for over 12 years. I suspect no one did anything after he filed for bankruptcy in 1993, then they forgot about the case. We have what you would call a "statue of limitations" for secured lending of 12 years. You can be sure that the bank concerned has since written to everyone with a loan (after a round of middle management arse-kicking ) just to make sure they are keeping in touch.
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