“Home Prices Remain Steady” - Los Angeles Times

Excerpts from an aticle published 2/15/07 in the Business Section of the Los Angeles Times with the headline “Home Prices Remain Steady - The Southland median in January is $485,000, defying expectations that it would be lower”:

“Southern California housing prices held steady in January while sales declines slowed, according to data released (by Lo Jolla based research firm DataQuick Information Systems) Wednesday, prompting some experts to suggest that the local real estate downturn may be nearing a bottom.” “Meanwhile, the sales decline of 17% from a year earlier was the smallest since May. . . the volume was about average for the last two decades.”

“The market is showing much more resilience than we or anybody thought, said John Karevoll, DataQuick’s chief analyust. ” . . .  since mid-2006, median prices regionwide have leveled off and the supply of homes for sale had thinned. “We may have botttomed out and are on the way up”, said G.U. Krueger, an economist for real estate advisory firm IHP Capital Partners in Irvine”

“Last month, Los Angeles County continued to show the most strength of any local county. Its median price rose 6.1% above a year ago.”

Fortune Magazine and Zillow.com - A Follow-up

Below, I posted a blog about an article that Fortune magazine published in its 2/7/07 issue on zillow.com, the internet site that purports to provide an estimate of the market value of a home. Following is an email which I sent to the author of that article:

“Your article on Zillow.com completely ignores the fact that you simply can not estimate a property’s market value given the limited public information available, such as the age of the home, location, number of bedrooms or bathrooms, or square footage. Many factors such as whether it has been remodeled, the desirability of the floor plan, proximity to schools, street appeal, etc. have a huge impact on market value. Only an experienced real estate agent or appraiser, taking all factors into consideration, can provide a property owner with an accurate estimate of a property’s value. I have seen many instances where Zillow.com’s valuations are 50% or more inaccurate, with many of their valuations appearing to be almost random.”

Today, I received an email response from Jeffrey O’Brien of Fortune magazine, the author of the article on Zillow.com, that read as follows:

“Actually, I think you’re ignoring the third section of the article, where I discuss this. I agree that the knowledge in the mind of an agent is the best approximation on the true value of any home (which is why I bothered to follow around brett barry and experience his knowledge first-hand). But what if there were a central warehouse for all the information that exists in the mind of every homeowner, every buyer, every seller, every realtor? Only then would you have a perfect market for real estate. It sounds far-feteched - until you think of wikipedia. Who ever thought you could have an authoritative encyclopedia compiled not by so-called experts, but by the masses? Whether or not zillow can pull this off is immaterial to me. But it is coming, some day, and smart realtors are thinking about how their business will change because of it. Anyway, that’s what I think.Thanks for reading - and writing.”

The following was my response to Mr. O’Brien:

 “The problem is that consumers (buyers and sellers of real estate) are using zillow.com, thinking that it is an authoritative source of information, and it is not!!! These people are making investment decisions based on faulty assumptions and information, somewhat based on publicity and articles such as yours. The focus of your article should have been on how zillow.com is perpetrating a fraud on the users of its service instead of on how wonderful it would be if the real estate markets were transparent and efficient like the stock markets. Real estate is not a fungible commodity, and can not be valued like a stock, which is traded on a daily basis, with its market value determined through an efficient marketplace.

Because an individual property has its own unique characteristics which significantly affect its value, and is infrequently traded in the market, the real estate market will never be what you envision as including a central warehouse for all the information that exists in the mind of every buyer, seller, or realtor, and articles such as yours just continue to feed the publics misconception as to the accuracy of zillow.com.

Although in the body of your article, you do address the problem with the accuracy of zillow.com’s valuation estimates, and the fact that an informed real estate agent is well worth his commission, the headline of your article “What’s your house really worth? . . . How Zillow is turning online voyeurism into a real estate revolution”, infers that zillow.com is a valuable and accurate tool for consumers to use (unfortunately, many people only read the headlines of articles such as yours).

The conclusion to your article is that wouldn’t it be wonderful if the real estate market were a completely efficient marketplace with perfect information, and that zillow.com was leading the way to such a marketplace, however the conclusion should have been that zillow.com is providing wildly inaccurate information to consumers, and that due to the basic nature of the residential real estate market, that such an efficient marketplace can not occur because of all the variables involved in pricing a home.”

Fortune Magazine and Zillow.com–Zillow Debunked

The Fortune Magazine aricle  on Zillow.com published in the February 7, 2007 issue, completely ignores the fact that you simply can not estimate a property’s market value given the limited public information available, such as the age of the home, location, number of bedrooms or bathrooms, or square footage. Many factors such as whether it has been remodeled, the desirability of the floor plan, proximity to schools, street appeal, etc. have a huge impact on market value. Only an experienced real estate agent or appraiser, taking all factors into consideration, can provide a property owner with an accurate estimate of a property’s value. I have seen many instances where Zillow.com’s valuations are 50% or more inaccurate, with many of their valuations appearing to be almost random.For instance, Zillow.com values the home across the street from me at a price approx. 40% less than my home, although it has approx. 22% less square footage, one less bedroom, a less desirable floor plan, a smaller yard, and no ocean view, which my home has, and although recently remodeled, my home has also been remodeled with a much larger new kitchen.  Zillow.com also has another home across the street from mine at a valuation at least 40% lower than its true market value, because zillow.com completely ignores the fact that it was recently completely remodeled inside and enlarged.

The business model of zillow.com simply can not provide accurate market value information, as the public information which it uses tends to lag the market, and most importantly, they are completely ignorant as to the unique qualities and details of each home that it appraises. Has it been remodeled?  Does the floorplan work well? Are the bedrooms too small? Are the bathrooms and kitchen well designed?  How large is the backyard and is it nicely landscaped?  Does the house enjoy good curb appeal and attractive and well maintained landscaping? How well maintained is the home, and does it have any issues such as mold, old roof, or other deferred maintenance?  All of these factors are important to evaluate in determining a property’s market value, and zillow.com simply can not do so.  Only an experienced real estate agent or appraiser, taking into consideration all of a property’s unique characteristics can help a client estimate a property’s true market value. Anyone using zillow.com as fact, may as well be using a Ouija board. Another good web blog that discusses this issue about how Zillow.com is a fraud is http://www.bloodhoundrealty.com/BloodhoundBlog/?p=134

Interest Rate Update from HSH Associates

Excerpts from HSH Associates Newsletter for the week ending February 2, 2007:

Mortgage rates continue to move higher, with the average 30-year fixed rate mortgage (FRM) climbing by seven basis points (.07) to 6.45%, according to the nation’s widest survey of mortgage rates and terms. Five-one Hybrid ARMs added five basis points, closing the weekly survey at 6.24%. Now more than a quarter-percentage point higher than their December lows, mortgage rates are climbing as they reflect an economy which seems a tad irrepressible at the moment. While it was expected that growth in the 4th quarter of 2006 was better than the 2% GDP seen in the third quarter, the 3.5% advance estimate of GDP growth was way above expectations, and stands above the level believed to be needed to help inflationary pressures remain contained, known as the economy’s ‘potential’.

Absent a slowdown in growth, it seems unlikely that inflation will moderate much from these levels, and more growth and firm inflation means any rate cuts by the Fed are moved well off into the future. The futures markets are now betting that the first rate cut may not come until December. Bond markets took some solace in the lack of renewed inflation pressure and the Fed’s characterization of improving inflation, and underlying interest rates eased a little during the week; mortgage rates will probably hold pretty firm next week, maybe even shedding a basis point or two.

Week ending February 2, 2007

Fixed Rate Mortgages 15 yr.  30 yr.  Comp. Adjustable Rate Mortgages 1 yr.     Comp. NW/National 6.18% 6.45% 6.32% 5.96% 6.20% CA/Statewide 6.24% 6.47% 6.37% 6.01% 6.20%