Zestimate gets fresh competition

Kenneth R. Harney on Dec 11, 2015

WASHINGTON – Can a machine – even one loaded with sophisticated algorithms, cloud-computing technology and real-estate market data – accurately estimate the value of your home?

No way, you might say, it takes trained, professional appraisers to inspect and value houses, and even the best of them don’t always get it right. But real estate and technology entrepreneurs strongly believe that relatively accurate automated estimations of value are achievable, and they have been working for years to create systems that do just that. You’ve probably heard of or used the best known – and most controversial – version to date- Zillow’s “Zestimate” model. It allows you to go online, enter an address and get a nearly instantaneous valuation, along with property data such as square footage, numbers of bedrooms, baths, lot size and the like. It’s available for millions of houses across the country, whether they are on the market for sale or not.

But Zestimates have provoked criticism by owners, sellers and realty agents who are upset at inaccuracies in value conclusions, property data and analysis of neighborhood price trends. Zillow itself acknowledges the problem, disclosing on its website that the “median error rate” nationwide is substantial – 7.9 percent. Error rates are measured by the difference between what the automated system says is the estimated value and the subsequent selling price of the property. Median Zestimate error rates in some exurban markets, however, range much higher – 10 percent to 20 percent and worse.

Now there’s a new, noteworthy competitor to Zestimates. Last week, national real estate brokerage Redfin rolled out its own proprietary model, claiming a median error rate of just 1.96 percent on homes listed for sale and 6.23 percent for all other houses. Dubbed the “Redfin Estimate,” it’s available free on 40 million homes in 35 major metropolitan markets. Redfin CEO Glenn Kelman says his company’s model not only offers the “lowest published error rate” available, but taps into “a treasure trove of data” provided directly by multiple listing services (MLSs) around the country and uses advanced cloud-computing power.

“This gives Redfin information about homes that non-brokerage real estate websites don’t have, like whether a home has a water view or is located on a busy street.”

The Redfin model also employs a weighting system keyed to market preferences for different home features and locations. For example, Kelman said, a waterfront location in the Seattle area may be much more highly valued than in other markets

As you might suspect, Redfin isn’t providing free online estimates purely out of a desire to further the general public’s knowledge. It’s in the business of representing buyers and sellers, and you can’t miss the tie-ins that accompany your Redfin Estimate. When you visit its site (http-//www.redfin.com/redfin-estimate) and log in an address, it displays not only the home photo and value, but has multiple links to agents “who can discuss and refine estimates … as well as list the home for sale.” It’s all voluntary of course – no obligation – but you get the point.

Like Zillow, Redfin discloses median error rates. The lowest rates for estimates on active listings are in Colorado (1.41 percent), Virginia (1.58 percent), Washington state (1.65 percent) and Arizona (1.67 percent). In metropolitan Washington D.C., it’s 1.95 percent. Valuation error rates on houses not listed for sale run considerably higher, such as 10.67 percent in West Virginia, 8.46 percent in Pennsylvania and 8.2 percent in Florida.

So what does Zillow think about this new competition from Redfin? I spoke with Stan Humphries, chief economist and chief analytics officer, and he didn’t mince words. Redfin’s claims of superiority may be “great marketing but there’s not much reality to it,” he said. Zestimates are available on 100 million homes, more than twice as large a database as Redfin’s, and its median error rate covers both listed and non-listed houses. Non-listed and non-urban homes inevitably are tougher to value, but Redfin limits its exposure by focusing on just 35 metropolitan areas. He scoffed at Redfin’s trumpeting of direct pipelines into MLS data and its use of cloud computing. Zillow uses listing information from MLSs and directly from brokers, and has employed cloud computing for years, said Humphries.

So what to make of this emerging spat between real estate valuation competitors? How about this- Try both systems on one or more houses – maybe your own and one or more you know well. See which performs better. It won’t cost you a cent to do test drives.

Are baby boomers causing shortage in real-estate listings?

Kenneth R. Harney on Dec 4, 2015

By KENNETH R. HARNEY

WASHINGTON – They rocked at Woodstock, marched in protest on campus, distrusted authority, and then as adults, took out mortgages and bought lots of real estate. But now, say some economists, baby boomers aren’t selling their houses as earlier generations did – they’re not downsizing fast enough as they approach and pass traditional retirement ages – and that’s contributing to inventory shortages of homes for sale as well as rising prices.

Boomers are part of a “clogging up [of] the whole chain of home sales,” Sean Becketti, chief economist of giant mortgage investor Freddie Mac, told me last week. “They appear to be staying in the family home longer than previous generations,” Becketti wrote in a new outlook report, “and the imbalance between housing demand and supply continues to boost prices.”

Of course boomers’ behavior has had outsized effects on the national economy for decades. In real estate, their footprint is enormous. Becketti cites the Federal Reserve’s most recent Survey of Consumer Finances (2013), which estimated that households aged 55 and older controlled two-thirds of all home equity. One federal estimate puts the aggregate value of their houses at close to $8 trillion.

In past generations, once the kids moved out, empty nesters either began to downsize by purchasing smaller single-family houses or they rented apartments. Boomers don’t seem to be in a rush to do either. In a report prepared this summer, Fannie Mae’s Patrick Simmons, an economics and strategic research group director, said that there’s no statistical evidence that boomers are reducing their single-family occupancy rate, trading down to homes with fewer rooms, or pushing up demand for apartments. Between 2010 and 2013, he said, “the number of boomer apartment renters did not change significantly,” but the number of millennial apartment dwellers increased by an average of nearly half a million a year.

So what’s the big deal? Why the concern about boomers staying put longer than expected? Everybody’s heard that 60 is the new 50 and that boomers are working longer than their parents and grandparents. Who really cares if they’re hanging on to their houses?

Here’s who- People who sell, build and finance new and existing houses care – it’s their bread and butter – as do potential buyers squeezed by rising home prices on one hand and rising rents on the other. According to Realtor.com, median list prices as of October were up 6 percent year over year. Inventories of houses listed for sale nationwide were down by 3 percent during the same period.

Three percent doesn’t sound like much. But check out the shortages and price increases in a few major markets-

- Seattle listings as of October were down 19.1 percent while median list prices jumped by 10.3 percent.

- San Diego listings dropped by 16.4 percent; median prices rose by 13 percent.

- Charlotte listings declined by 9.8 percent; median prices were up by 12.8 percent.

- Salt Lake City listings were down by 23.4 percent; prices were up by 10.2 percent.

No one’s blaming this on boomers alone. Economists say boomers’ slower than expected rate of downsizing and selling is playing a contributing role to supply, demand and pricing imbalances in local markets – not creating them.

Lawrence Yun, chief economist for the National Association of Realtors, says there are multiple factors at work here, especially the lingering effects of the housing bust and the Great Recession. Homeowners of all ages lost billions of dollars of equity wealth during 2008-2011, he argues, and many owners are still rebuilding sufficient equity to allow them to sell and move without having to bring money to the settlement. Boomers are a part of that group and some have been forced to postpone their moves and sales.

David Crowe, chief economist for the National Association of Home Builders, points to a feedback loop effect that is discouraging some boomers from listing and selling- Fewer listings mean more competition for a limited supply of homes in hot markets. That competition pushes up prices for everybody, including boomers who might like to downsize but can’t find a replacement home that’s both affordable and acceptable. So they wait.

But changes are coming. Fannie Mae’s Simmons observes that the boomer logjam is a temporary issue. “Boomers will not inhabit this vast inventory (32 million homes) forever,” and when their circumstances change – which they inevitably will with age – watch out. “Their actions will reverberate through the housing market .”