Posted by Jonathan J. Miller -Tuesday, October 31, 2006, 8:23 AM
Zillow has been the punching bag of many of late, and perhaps its simply backlash from the large amount of free publicity they got after launch. It generated a lot of buzz to the point where bloggers were so sick of talking about them that they swore to abstinence (from Zillow) for a while.
People have had a chance to use the site for a while now and are beginning to realize how inconsistent the results are. Very accurate in some markets, very inaccurate in other markets and a lot of markets in between so you don’t quite know when and where the results are accurate. The results can be like snowflakes: pretty to look at, but the results for each search can provide a random result. They publish the ratings but I am sure the consumer doesn’t refer to them very often. And seriously, 52% accuracy in NYC means the results should not be published, should it? I have commented on this before since I am in the valuation business.
Zillow is such a neat concept on paper, but in the end, all data goes into a black box and spits out a number. They over promised and should have moved slowly over the country as they felt comfortable in each market. The logarithms that create the “Zestimates” are proprietary and perhaps thats what drives the suspicion, combined with pretty significant inaccuracy ratings.
Despite what I think are best efforts on Zillow’s part, however, I suspect we are seeing the first of several attempts to shut them down or change their model, refuting the argument that since they disclose their inaccuracy, they can continue business as usual. Because of their high visibility, its likely to become a public relations coup for anyone that goes after them.
Damon Darlin writes about the complaint filed by the Community Reinvestment Coalition in his article A Home Valuation Web Site Is Accused of Discrimination.
In a letter sent by the National Community Reinvestment Coalition to the Federal Trade Commission last Thursday, the group asserted that Zillowâ€™s Web site misrepresented home values and placed residents in low-income neighborhoods â€œmore at risk for discriminatory and predatory lending practices.â€
Here’s the complaint [pdf]
I don’t really follow CRC’s logic for taking this action since all markets are subject to various degrees of inaccuracy but its going to be interesting to see what the FTC does. I have seen this from my own personal experiences from family members in different parts of the country who have used the site.
Complaints are filed against appraisers for inaccuracy too, but unless there is negligience or fraud commited, its simply an opinion. I know first hand that data collecting in my urban market is often very challenging, and more difficult than in many surrounding suburban markets. Besides record keeping issues, one overlooked reason for the inaccuracy of urban areas is the challenge of valuation in a “vertical” market. Condos and co-ops stacked on top of each other is very difficult to automate.
Whats also really interesting, is the fact that they have been marketing to consumers in order to bypass the real estate professional, but recently the orientation has changed to try to be broker-friendly. This attempt to placate the brokerage community backfired recently and the pr spokesman for the NYT article contradicted themselves by saying:
[UPDATE]A Zillow spokeswoman, Amy Bohutinsky, said the siteâ€™s valuations, which it calls Zestimates, were intended for consumers and had never been marketed to real estate professionals. The company sees the tool as a way to empower consumers who in the past would have to rely on a real estate agent to make an estimate based on the sales of comparable homes in a neighborhood.
Is Zillow’s market ignorance in certain areas bliss? Thats up to the FTC, apparently.
Posted by Jonathan J. Miller -Tuesday, October 31, 2006, 7:29 AM
This week, our contributors to our other blog Soapbox have been busy. Here are a sampling of several new posts:
Solid Masony column: Is It A Trick Or A Treat â€“ Why Must Everyone Try To Predict The Future?
The Hall Monitor column: Tax Rebates That Really Arenâ€™t
Fee Simplistic column: Short Term Thinking In Long Term Cycles
Posted by Jonathan J. Miller -Monday, October 30, 2006, 8:25 AM
From Paul Krugman’s Op-ed piece Bursting Bubble Blues [NYT subsc]:
* (1) Housing bubble? What housing bubble? â€œA national severe price distortion [in housing] seems most unlikely in the United States.â€ (Alan Greenspan, October 2004)
(2) â€œThereâ€™s a little froth in this market,â€ but â€œwe donâ€™t perceive that there is a national bubble.â€ (Alan Greenspan, May 2005)
(3) Housing is slumping, but â€œdespite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.â€ (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)
(4) Well, that was a lousy quarter, but â€œI feel good about the U.S. economy, I really do.â€ (Henry Paulson, the Treasury secretary, last Friday)
(5) Insert expletive here.
Krugman makes the argument that the drop in GDP and construction spending as well as the rise in foreclosure rates foretell a long decline in housing (I seem to recall a recurring pessimistic theme in his past columns on housing). From a political perspective, the Bush administration has tried to turn coverage from the Iraq War to the economy but that doesn’t appear to be a wise strategy.
In case youâ€™re wondering, I donâ€™t blame the Bush administration for the latest bad economic numbers. If anyone is to blame for the current situation, itâ€™s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending.
Posted by Jonathan J. Miller -Monday, October 30, 2006, 7:58 AM
What goes down, must come up…I think it goes something like that? Peter Coy’s Boom! Bust! Boom? Check the history of housing busts. Some areas bounce back more strongly than others [BW]. The article deals with the concept of how quickly a market can return from a downturn.
How common is this boom-bust-boom pattern? Over the past three decades about 40% of housing busts in big metro areas have eventually been followed by strong recoveries. That’s according to a BusinessWeek analysis of inflation-adjusted housing prices. In an additional 15% of markets, prices adjusted for inflation barely got back to their previous peaks after 15 years. In the remaining 45% or so of markets, prices adjusted for inflation were still down a decade and a half after their pre-bust peaks.
According to Edward L. Glaeser, a Harvard University economist, whose work I admire especially his paper: Why is Manhattan So Expensive? Regulation and the Rise in House Prices [pdf] bases his thinking on restricted supply.
Markets with more zoning restrictions, less available land an other supply restrictions, may see more volatility in pricing, but are more likely to bounce back more quickly. In other words, although these markets may be more expensive to begin with but they generally have less speculation and more restrictive land use controls. As a result, they tend to bounce back sooner.
This article presents yet another argument as to why the US housing market cannot be looked at as one broad market despite the oversupply and high demand for articles that do just that.
Posted by Jonathan J. Miller -Friday, October 27, 2006, 12:05 AM
Periodically I purge some links I collect that are worthy of a post or were interesting or fun, but I didn’t have enough time to expound upon and too much time had passed by. Since I didn’t want them to let them be forgotten, I pulled them out of the tank – definitely worth checking out.
Posted by Jonathan J. Miller -Friday, October 27, 2006, 12:01 AM
CNN/Money’s Business 2.0 has several top 10 city ranking features that are kind of fun to read about. I can’t figure out why we would be curious about a top ten list. After reading a feature like the top ten places to live, do we pack up and move there? Do we call our parents and thank them or give them a hard time for making it our home? Or is it more reassurance that we are living in the right place or simply affirmation that we made a terrible error?
Top 10 cities: Where to buy now
The real estate slump could get worse before it gets better. But these 10 markets offer great opportunities for those who have the patience to buy and hold.
- Panama City, FL
- Vero Beach, FL
- Bridgeport, CT
- Lakeland, FL
- McAllen, TX
- San Luis Obispo, CA
- Wilmington, NC
- Manchester, NH
- Fort Collins, CO
- Atlanta, GA
Comment: I don’t see how Florida would have 3 of the top 4 cities to invest in with all the indicators of overheating.
Where not to buy
_These 10 overvalued cities have run their course, and home prices are expected to drop over the next year._
- Stockton, CA
- Merced, CA
- Reno/Sparks, NV
- Fresno, CA
- Vallejo/Fairfield, CA
- Las Vegas, NV
- Bakersfield, CA
- Sacramento, CA
- Washington, DC
- Tucson, AZ
Comment: Six locations in California made the grade and the rest have reputations for high investor concentrations.
_Short-term price drops are possible. But healthy economies and rising incomes will support these “superstar cities” over the long run._
- San Francisco
- New York
- Los Angeles
Comment: With the inventory overhang in Boston and LA, I am not sure why they make the grade. The rest seem reasonable choices relative to the remainder of the country. San Fran, New York and Seattle are characterized by low speculation and solid economies. Missing 6-10.
Top 10 foreclosure markets
_Where the action is â€“ highest portion of households in foreclosure, from RealtyTrac._
- Greeley, CO
- Detroit, MI
- Miami, FL
- Indianapolis, IN
- Ft Lauderdale, FL
- Denver, CO
- Dayton, OH
- Dallas, TX
- Fort Worth, TX
- Atlanta, GA
Comment: With the exception of Florida and Georgia, all locations are not located near the coasts. The Midwest is seeing the auto industry struggle which is affecting employment. These Florida markets have heavy investor concentrations.
Posted by Jonathan J. Miller -Thursday, October 26, 2006, 10:26 AM
Wednesday Thursday, so its the morning after the time of the week to provide my Three Cents Worth as a post for Curbed. In a hailstorm of national economic data releases from yesterday and today, I delayed the release to allow people enough time to absorb the national data before springing this on them…well, ok, honestly, I was sidetracked by getting some actual work done.
Three Cents Worth: Price Momentum Wanes, Listing Hiccup Reigns
Previous posts can be found here.
Posted by Jonathan J. Miller -Thursday, October 26, 2006, 10:08 AM
Yesterday was a busy day for telegraphing and spin. Two of the more significant economic announcements fell on the same day. The Federal Open Market Committee released their position on short term rates and changed their positioning somewhat hawkish. The National Association of Realtors released their existing home sale stats which accounts for more than 85% of all home sales (but is somewhat behind the curve since it is based on closed sales). It includes median sales price, the number of sales and inventory.
The Federal Reserve did what the investors anticipated and held rates firm [WaPo] at yesterday’s FOMC meeting. They expressed concerns about inflation but since the housing market has seen a drop off in activity prices, more than they anticipated (see, I told you). It had the effect of slowing down the remainder of the economy, keeping inflation in check, or it least at a level they can tolerate for now [REJ]. It seems to me that the economy will continue to slip and the Fed is telegraphing an inflation concern to avoid having to commit to an immediate rate increase. It has the same desired effect.
Since the summer time, the Fed has been juggling competing concerns of rising inflation and slowing growth. Core inflation rose to 2.9% in September, the highest in a decade and well above the 2% level many Fed officials have said they are comfortable with. Although inflation by the Fed’s preferred index is lower, officials still want to see it drop back to 2% over the next few years.
At the same time, falling housing activity and automobile sales are denting growth; it’s expected to have fallen to an annual rate of about 2% in the third quarter.
The NAR reported that the number of existing home sales dropped for the 6th straight month [USA Today]. The annualized rate of decline was 14.2% in the number of sales, 1.9% below last month. Median sales price dropped 2.2% over the past year, the second month of declines.
public relations personnel economists with NAR spin that the bottom is near but don’t provide a reason why. It certainly may be but they don’t give any insight from their stats about this. Presumably as prices stabilize, buyers on the sidelines will jump back in. One encouraging sign is that inventory has fallen for 2 consecutive months – thats the only stat provided that would suggest the market is bottoming out.
However, inventory is up 35.1% from last year at this time. Since the number of sales fell sharply and prices weakened this month, where is the good news?
I loath to get dizzy.
Posted by Jonathan J. Miller -Thursday, October 26, 2006, 7:11 AM
Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).
Barry Ritholtz , who runs one of the best and most essential econ blogs out there: Big Picture, has a hilarious post (ok, more like humorous to people not excited about numbers in general).
Source: Big Picture
Click here for full post
The chart pokes fun at the trade group, National Association of Home Builders’ suggestion that sentiment has leveled off and we have bottomed out.
When you see the way Barry has presented it, common sense tells you there is a high probability that its like a Seinfeld episode (translation: its about nothing).
Incidentally, this seems to correlate with speculation that national inventory has leveled off and builders stocks have begun to rise as there is an assumption that the worst is behind us.
Posted by Jonathan J. Miller -Wednesday, October 25, 2006, 7:52 AM
Mortgages have been the center of attention (ok, one of the centers of attention) as they relate to the housing market. The Mortgage Bankers Association (MBA), the major mortgage trade group announced this week that the first half of 2006 saw a drop in mortgage volume, with the exception of non-traditional products like interest only and option-arm products. Here’s a recap:
- 10% drop in purchase mortgages
- 22% drop in refinance mortgages
- 49% were first mortgages
- 33% were first time home buyers
- 32% rise in number of reverse mortgages
- 1% increase in second mortgage volume
- 19% ARM market share, down from 30% share
MBA projects a 19% overall drop in originations this year and a 14% drop in 2007 before leveling off [CNN/Money]. They describe the housing market as “normalizing” and expect to see near normal economic activity by 2007 and 2008.
“Long-term interest rates have remained low in the face of rising short-term rates, equity prices have risen nearly 20 percent, capital expenditures remain strong, the trade sector has turned from a big drag on growth to a modest stimulus and energy prices have dropped sharply,” Duncan said of his forecast for longer-term stability. [MBA chief economist Doug Duncan]
The Fed likely will keep interest rates unchanged with the federal funds rate at 5.25 percent rate through 2008, the trade group predicts.
One of the reasons that the number of sales eased this year was the increase in mortgage rates – both real and perceived affordability. Its no surprise then that non-traditional mortgage applications have increased as purchasers seek to keep their payments in line with their incomes.
ARM mortgages helped fuel the housing boom and this year, their share dropped from 30% to 19%. Why? The spread between ARMs and fixed mortgages has contracted (do we hear inverted yield curve?) A stable fixed mortgage market is unlikely to increase the number of sales. In fact, affordability will suffer further as $1.1 to $1.5 trillion ARMs will reset in 2007. More than half of those are expected to move to a fixed rate product while the remainder do nothing.
MBA forecasts fixed mortgage rates to remain at or slightly above current levels [MW].
Fixed-rate mortgages should remain at about 6.3% to 6.4% through the rest of the year, according to the most recent Mortgage Bankers Association forecast. Rates are expected to rise to about 6.7% by the end of 2007 and to about 6.8% by the end of 2008.
One of the byproducts of the drop in origination volume will be the shakeout in lending over the next year. Too many lenders and mortgage brokers to divide up the pie. [LA Times] Lender profits are down as margins gets squeezed.
Countrywide Chairman and Chief Executive Angelo R. Mozilo and his top executives outlined current troubles that largely boiled down to too many competitors chasing too few loans.
Mortgage applications tend to stagnate when mortgage rates are flat and it follows that housing would stagnate or weaken further until the inventory overhang is absorbed. However, the housing market is not just about fixed mortgage applications and their rates which is what the public tends to relate to. Its more about ARMs. The spread between ARM and fixed rate mortgages is much smaller today than a few years ago and that has been the impetus in the smaller number of mortgage and housing transactions.
Its cheaper to be more risky but less so today than before.
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