Housing Market Showing Real Signs of Strengthening

The long-awaited housing recovery is beginning to blossom, according to industry experts taking a look at recent existing-home sales.

While admitting home sales “are still very low,” Paul Dales, chief economist at Capital Economics, says “it is clear that housing recovery is now well underway.” The evidence: home sales have been on the rise for the past three months, posting a 5 percent increase in December.

Housing inventory is on the decline and fell to its lowest level since March 2005 last month, according to NAR. Approximately 2.3 million homes are available for sale currently. “The inventory supply suggests many markets will continue to see prices stabilize or grow moderately in the near future,” Yun said.

For more head over to DSNEWS.com

How Accurate Is Zillow? New Study of Actual Home Sales Says Not Really.

Zillow, based in Seattle, Washington, has made millions of dollars since its launch many years ago. The idea of allowing anyone to see the value of their home for free was a novel idea with extraordinary appeal to home owners. Zillow seeks to utilize public records combined with math formulas to calculate a home value.

So, how accurate is this “Zestimate®” value? At Country Club Lifestyle Realty we have analyzed 91 homes sold throughout Houston to show that Zillow will at times be consistent with the actual sales price of a home, but the overall results are not a ringing endorsement. In a few cases Zillow missed the sales value of a home by 25-30%. In one specific case the value was off by $121,000. That is a large chunk of change.

The study involved home sales ranging in value from $130,000 to $530,000 over a 30 day period beginning in December 2011. The majority of sales in the Houston and surrounding suburbs fall within this range. Higher end homes were specifically excluded from the study since luxury homes may tend to skew the data. The intent of the study is to determine an accuracy level for the vast majority of home owners. While the study includes the Houston and surrounding suburbs the author believes the values are consistent for the majority of the country. The results are similar to a study performed by The Wall Street Journal in 2007.

The actual data utilized in the study is presented below. Figure 1 provides the raw data. Figure 2 shows a linear comparison of the same data with 5% error bands. Figure 3 shows the normal distribution using a bell curve.

Percent Error of Zillow's Zestimate Against Actual Home Sales

5% Error Bands for Zillow Zestimate When Compared Against Actual Home Sales

The Normal Distribution of Zillow's Zestimate in Percent Error Against Actual Home Sales

Using a statistical analysis the results are the following:

• Zillow’s Average Percent Error: 6.14%
• Study Accuracy: +/- 0.86%
• Median: 6.70%
• Standard Deviation: 8.45%

As evident by first glance (plus the large standard deviation) the only clear trend is that Zillow generally underestimates the value of the home. For this study homes below $160,000 tended to not exhibit large swings in percent error when compared to their actual sales price. Beyond this value a specific home may be undervalued by 25% or overvalued by 15%. Overall 77% of the homes were undervalued. This is good news for buyers when they convince sellers that Zillow is an accurate representation of their home’s value. In other scenarios they may lose out on the house of their dreams by insulting the home owner with a low ball offer.

For a given home owner there is only a 1 in 5 chance their Zestimate is within 2% of the actual value and a 1 in 3 chance the value is within 4%. The same 1 in 3 chance also exists for a Zestimate above 10%. Overall these results are not impressive.

As reported by The Wall Street Journal, through an interview with Stan Humphries, Vice President of Data and Analytics, Zillow's estimates utilize sales prices, past sales history, tax assessment data, and general home size. In addition they seek to obtain a value through similar comparable homes. Based on this information, why then is Zestimate wrong and why so much random variation when compared to actual sales?

The approach as stated by Mr. Humphries appears sound; however, after reviewing this statement the error becomes apparent. First, tax assessments can vary significantly from home to home. Some homes may be homestead while others may not have been re-assessed for several years. Second, past sales history (as most real estate agencies and banks will attest) provide no indication of current or future performance. The housing economy can change quickly as evidenced in 2008. Third, the general home size leaves out the amenities associated with homes and communities. For example, gated communities generally increase the home value. Upgraded kitchens and bathrooms on a 1970’s home can impact the overall value. The overall condition of the building and lawn clearly influences the sale value. Even the energy rating of a home can have a significant impact.

Clearly Zestimate is not a reliable number but sadly many home owners lean on Zillow to determine the value of their home. A quick run through blogs posted by home owners in Zillow’s Real Estate Advice section illustrates this fact. Many voice their frustration to Zillow when their Zestimate changes due to tweaks in the algorithm and the value declines.

So how should a home owner obtain a better representation of their home value? The most accurate method is to contact a local Realtor. However no longer are in home visits or long extended phone conversations required. Many Realtors (including CCLR) now offer a free market analysis through e-mail. Home owners can sign-up for monthly email campaigns that provide current home sales in their area. For anyone around Houston and the surrounding suburbs, CCLR utilizes a program called Market Snapshot that provides the latest home sales and listing details tailored for a specific home. Click here to enter your home's address and information for your free Market Snapshot.

National Average Home Loan Amount Also By State

Lending Tree has released data showing the average home mortgage amount broken down by state. The national average is $222,261 which amounts $1061/month on a 30-yr note at 4% without insurance and taxes. So where is Texas? They came in near the bottom at just under $183,000.

Surprisingly New York or California did not top the list. Actually they didn't even make the top 3. Based on loan amount the top five most expensive places to live is:

1. Alaska - $677,299
2. Washington D.C. - $393,453
3. New Jersey - $344,240
4. New York - $340,124
5. Maryland - $328,650

The five cheapest places are:

1. Mississippi - $137,182
2. Nebraska - $137,515
3. Delaware - $140,398
4. Indiana - $147,135
5. Iowa - $148,344