Archive for March, 2012

Zestimate change causes wailing, hand-wringing

Remember the hubbub a few weeks ago when NAR revised some of its home-sales data? It’s happening again — but this time it’s Zillow on the receiving end.

And people are not happy about the changes.

Quoth the Wall Street Journal story:

On June 14th, Bill Trumbo, a 68-year-old retired financial analyst in Phoenix, Ariz., logged onto his bank’s online personal financial management account and found that his house in Phoenix had lost nearly $100,000 in value overnight.

Oh noes!

Let’s be real. His house didn’t lose “nearly $100,000 in value.” The “Zestimate” for his house did, and that only has a tenuous connection to reality. (All right, maybe that was a bit harsh. But using Zillow’s estimate as the actual value of your home is like using a Oujia Board to name your child.)

So what happened?

Zillow changed its formula for creating those “Zestimates.” Oh-oh.

Good: Now it gives more weight to recent sales. Bad: It still relies on user-submitted data about improvements. Silly: People still think those figures represent reality.

Bill Trumbo (from the Journal story) saw one of his homes’ Zestimates drop $92,100, while another rose by $67,600. As a result, Trumbo believed his personal net worth dropped, and “[h]e dashed off letters to Zillow’s CEO, as well as to the CEO of his bank, Wells Fargo, explaining that Zillow’s change had caused him to lose $40,000 in paper net worth.”

How would someone respond to such a letter? (“This vague estimating tool says I’m not worth as much!”) Perhaps by explaining that no serious financial institution would rely on a “Zestimate” for anything other than… well, not at all, actually.

Reality kicks in around paragraph 10 of the story, which quotes Appraisal Institute spokesman Bill Garber, who explains that Zestimates are just a kind of automated value model:

AVMs have limitations, the biggest being the lack of inspection and oversight of any improvements. Complex markets render them nearly useless. They’re basically an aggregation of public records data, and public records are riddled with errors.”

And my favorite line of his, which sums it all up: “Garbage in, garbage out.”

All this house needs is a "Free Candy" sign

It’s in Taipei, which isn’t terribly surprising. Still, imagine trying to sell the house next door.

You gotta admit, the detail is amazing.

History of the home, room by room

7507825 The latest book from one of my favorite authors, Bill Bryson, is a bit of a treat for people who are dealing with “home.” It’s called, in fact, At Home, and it’s got a simple premise: What’s the history of each room in a house?

Bedrooms are a fairly recent thing. The hall was once the most important room in the house (hence “Carnegie Hall,” “Royal Albert Hall,” etc.). There’s a reason the two spices on our tables are salt and pepper (and not, as Bryson muses, pepper and cardamom or salt and cinnamon). And lots more.

The point of the book, he said, was to “write a history of the world without leaving home” — to “to wander from room to room and consider how each has featured in the evolution of private life.”

As with all of Bryson’s books, it’s a fun read, chock full of “Wow, I didn’t know that” moments, and great conversational fodder, especially as you’re touring a home.

Five-year rule for home ownership?

Thursday Bram (yes, that’s her real name) over at Money Ning makes the case that anyone buying a home should plan to stay there at least five years.

As she puts it,

When you purchase a house, the general rule is that you want to be sure to be in the same location for at least five years. Otherwise, financially, you’re probably going to take a hit.

Click here to read “The Five Year Rule for Buying a House“.

Mortgage rates dip below 4% again

That is all.

So, what are Gen-Y’s housing goals?

Worth a read: The Urban Land Institute’s report, “Generation Y: America’s New Housing Wave.”

A few sample findings (the report is 26 pages long, so there’s lots of food for thought):

  • For the first time in decades, America’s average household size is inching up as Gen-Yers (and even some Gen-Xers) take longer to leave home—or return to their parents after losing a job.
  • image Two-thirds expect to be owners, including over half those in their 20s. Among those who will be in their 30s, three-fourths believe they will be homeowners.
  • Of those saying they do not expect to own by 2015, seven of ten claim they will own at some future time.
  • Over half those currently living with their parents believe they will have acquired their own homes by 2015.
  • Hispanics are ahead of whites in their ownership expectations. Blacks have slightly more
    modest home buying goals, but the difference is not statistically significant.
  • 21% expect to put down less than 10% as down payment; 39% expect it to be between 10% and 20%. And 40% expect to come up with a down payment of more than 20%. (“That such a high percentage of future homeowners expects to put down less than 20
    percent on a home purchase suggests that Gen Y may not be fully apprised of today’s
    tighter mortgage underwriting standards.”)

There’s lots more — future housing preference, interest in walkability, rural vs. suburban vs. urban, and on and on. Check it out.

The Urban Land Institute released its semi-annual Real Estate Consensus Forecast, in which it surveyed 38 leading real estate economists and analysts from “major real estate investment, advisory, and research firms and organizations” about their views on the upcoming real estate market.

And it looks like good news. Or, rather, it looks like the consensus is that we’ll be getting good news.

Over the next three years, those real estate experts expect “broad improvements for the U.S. economy, real estate capital markets, real estate fundamentals, and housing,” and “believe that most facets of the U.S. real estate economy will strengthen considerably or remain healthy through 2014.”

I’m tempted to cut and paste huge sections of this report, ’cause it’s chock full of good and useful data. I shall refrain. Mostly. Here are a few highlights.

In the commercial sector

  • imageCommercial property transaction volume is expected to increase by nearly 50%.
  • Institutional real estate assets and REITs are expected to provide returns ranging from 8.5% to 11% annually.
  • Vacancy rates are expected to drop between 1.2 and 3.7 percentage points for office, retail, and industrial properties and remain stable at low levels for apartments.
  • Rents are expected to increase for all property types
  • Housing starts should nearly double by 2014
  • Home prices should begin to rise in 2013, with prices increasing by 3.5% in 2014.
  • Commercial real estate transaction volume will rise about 18% in 2012, 16% in 2013, and 8% in 2014.
  • Issuance of commercial mortgage-backed securities is expected to increase “briskly”.

In the residential sector

  • Single-family housing starts are expected to rise 16% in 2012, 32% in 2013, and 21% in 2014.
  • The average home price should stabilize in 2012, then increase 2.0% in 2013 and 3.5% in 2014.

.

Study: US drilling doesn’t affect gas prices

Worried about gas prices, oh ye who drive all over town? Not surprising — for the first time, they’re higher than they were at the price peak in 1981. (Well, I’m not counting 1918.)

Unfortunately, what a lot of us hoped would help ease prices — more domestic drilling/production — turns out not to make a difference at all.

The Associated Press ran the numbers, comparing gasoline prices to U.S. production. And it found that domestic production has no effect on prices. Zilch. In fact, since February 2009, our oil production has increased 15 percent … and we all see what happened to gas prices.

As a Minnesota Public Radio story put it,

That’s because oil is a global commodity and U.S. production has only a tiny influence on supply. Factors far beyond the control of a nation or a president dictate the price of gasoline.

More drilling can mean more jobs, and that’s a good thing. But if you’re thinking that it’s going to lower gas prices, that turns out not to be the case.

As Judith Dwarkin, chief energy economist at ITG investment research put it, “Drill, baby, drill has nothing to do with it.”

An annual survey by American Express — the “Spending & Saving Tracker” — found that about 10% of Americans (23 million people) are planning to move in 2012. And about 44% of those (10 million) plan to buy a home.

Meanwhile, most homeowners (70%) are planning some sort of home-improvement project. No word on how many of those are realistic, and how many are “teach myself woodworking to build a new deck by myself.”

Click here to read all about it.

Affordable housing in perspective

So what makes housing affordable? A simple guide is that a family shouldn’t spend more than about 30 percent of its income on rent and utilities. (Although you can argue, I supposed, whether the number should be higher or lower.)

For one thing, that makes basic common sense. For another, using the 30 percent metric means the other 70 percent is out of the picture — it doesn’t matter what else they spend it on.

Anyway.

Every year, the National Low Income Housing Coalition (NLIHC) compiles a report that figures how much a household has to earn to afford basic housing in various regions of the country — “basic” meaning “a modest two-bedroom apartment.”

They call that figure the “housing wage.”

Example: If such an apartment typically rented for $600 a month (including utilities), based on the 30 percent rule the family would have to bring home about $2,000 a month.

There are about 176 working hours in a month, so that family’s housing wage would be about $11.36 per hour.

Pretty straightforward.

Except that in real life, the average housing wage in the U.S. is $18.25/hour. The average renter earns $14.15. Ergo, you need at least two people working to afford it. (Which makes sense, as we’re talking about a two-bedroom place.)

Of course, the Federal minimum wage is only $7.25, so you’d need three people earning that to afford it. So if you earn minimum wage, better find a couple of roommates and prepare to be cozy.

In Washington, D.C., the housing wage is $28.96/hour. And just to toss this out there, on any given night (according to HUD), about 650,000 Americans are homeless.