Zillow Got You Down? Look Beyond the Averages!

Speaking with a good friend and very savvy client this morning, I happened to comment that "Zillow is directionally correct 50% of the time" for overall prices in a given local market.  Of course this is because Zillow uses mathematical algorithms that fail to address property condition, changes in sales mix, shortages in inventory, and similar qualitative and quantitative factors not available without a modicum of local expertise.

As an example, relying on Zillow, one could easily conclude that property values in Manhattan Beach have suffered to the tune of 5-8% in recent months.  This dramatic but misleading conclusion results from what I call the "tyranny of averages." By this I mean that averages of non-homogeneous groups (e.g., newer homes vs. older, desirable homes vs. teardowns, better locations vs. commercially-impacted streets, markets including builders vs. markets without significant building activity) are little more than hash totals until underlying factors are revealed.

In the Manhattan Beach Tree Section and in East Manhattan, few newer, larger, highly-desirable, well-located homes have been available in the inventory of homes for sale in recent months.  I have well-qualified buyers for both RIGHT NOW, and have yet to find suitable properties to match their needs. As a result, Tree Section statistics are skewed toward smaller, less-desirable properties that have been marching through the ranks.  Zillow interprets this as meaning Tree Section sales volumes and values are down, an uninformed conclusion.

The reality:  South Bay Brokers' sales are up 18% year-over-year from 2010.  Of course that's a composite number too, but I can give you the details!  In fact, many such details can be found at the South Bay Market Data section of this very Beach City Digs Blog!

So as frequently mentioned in this blog, watch out for averages.  You'll find them rampantly reported in the general press, which is a great place for real estate ads but seldom for actionable real estate news.

Instead, rely on a qualified real estate professional who knows and understands the micromarket, the underlying factors, the prevailing trends, and how to have peace of mind dealing with them all. -David

The New Rules of Remodeling - WSJ.com

Thinking about remodeling?  Few might think that Harvard or USC would be interested!

The New Rules of Remodeling - WSJ.com

But the parameters have changed greatly with reductions in  home values and equity. - David

"Home prices rose for the seventh straight month in December..." - Builder Magazine

What does it mean when home prices rise in a single month?  Not much.  But in this article we learn that this is the 7th month in a row, which is very significant:

Home prices rise 0.3 percent in December - Builder Magazine

The S&P/Case-Shiller index tells us that home prices maxed out in May of 2006, nearly four years ago.  So housing declines continued for about three years, then leveled out nationwide in the middle of 2009. 

Does that signal a big runup soon?

Homeowners' equity is again on the rise after three years of unprecedented shrinkage - LATimes.com

We all knew prices couldn't go up forever, right? Well, they couldn't go down forever either, and the South Bay is a good example of a locale where prices are stabilizing. In fact, would you believe U.S. homeowners' equity in their homes is rising?  It's true. - David

Foreclosure glut deflates all home sales

I'm often asked whether (or why) distressed property listings and sales (foreclosures, short sales) affect the value of normal properties offered for sale under standard terms.  Here's a commentary on that topic from MarketWatch:

Foreclosure glut deflates all home sales Realty Q&A - MarketWatch

The bottom line is that the market prices homes in light of available substitutes, so distressed properties, though usually in much worse condition than other properties, definitely have an impact in the eyes of buyers, appraisers, and lenders.