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Posts Tagged ‘Zillow’

With Mortgage Lending Historically Tight, Renters Suffer Just As Much

April 15, 2014 | 4:19 pm | nytlogo |

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There was a good article in the New York Times yesterday: In Many Cities, Rent Is Rising Out of Reach of Middle Class

Many have complained about the Federal Government’s (and our society’s) overselling of homeownership over the past decade and how the decline in homeownership will eventually lead to an emphasis on rentals in the US. Of course, like many housing market ideas, good and bad, they tend to be presented in a vacuum, without real context.

I believe much of this discourse is in reaction to tight credit combined with a weak economy rather than some sort of fundamental cultural and economic shift. During the bubble we got the opposite discourse – that there was a fundamental cultural and economic shift towards homeownership.

Currently there is a much smaller subset of Americans that have access to financing. According to the Federal Reserve Senior Loan Officer Survey, lending has actually tightened in 2014 over 2013 (related to QM). Many homeowners are unable to sell because they can no longer buy and many renters no longer qualify for financing so the idea of of homeownership as a goal fades.

Case in point has been the recent public discourse on the issue of home affordability, whether it be sales or rentals. Zillow presented an analysis for the New York Times that illustrates how much rents have risen in the past 13 years (since 2000) in cities across the US.

Here’s the scenario:

The economy is weak – we are seeing tepid growth in employment, stagnant incomes and historically tight residential mortgage lending.

  • Approximately 38% of homeowners can’t buy their next home so they won’t list their home for sale.
  • Buyers without credit issues won’t list their homes until they can find something to buy.
  • The lack of supply presses prices higher because those who have access to credit have little inventory to choose from, driving up prices.
  • Renters looking to buy can’t find a home they want to purchase so they are kept in the rental market.
  • Renters looking to buy don’t qualify for a mortgage so they stay in the rental market.

The organic flow out of the rental market into the sales market is slowed and a log jam is created of too many renters and not enough buyers.

Rising rents against stagnant incomes creates an affordability crisis. The sales and rental markets are connected. They are not mutually exclusive.

Rising rents are a product of tight credit, which is a residual byproduct of the financial crisis. Fix the economy and credit eases, then lending normalizes (no, not circa ’06) and the pressure on rental housing is eased.

ASIDE I’m not entirely confident with the reliability of the historical rental data being presented to the New York Times by Zillow – but I still agree that affordability is being pressured:
- Zillow was launched circa 2006 and rents are not public record so the early data has to be super thin.
- The comparison was made between a first quarter (low) and a third quarter (high) in a highly seasonal market.
- I am not sure if “New York” means Manhattan or New York City. If it is Manhattan, then our median rent figure in 1Q 2000 was $2,600 in nominal terms, and $4,276 in real terms. In nominal (unadjusted for inflation) terms, rents have risen 23.1% through 3Q 2013 while real median rent has fallen 27.3%. The Zillow median rent as share of median income nearly doubled, rising from 23.7% to 39.5%. Either incomes have collapsed in NYC or the 2000 rental figure being punched into their model is flawed, ie way low, no?

Other inights on any of this would be appreciated.

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Zillow Acquires StreetEasy, Goes Vertical, Literally

August 19, 2013 | 10:41 am | bloomberglogo |

I was reading my twitter feed and it just jumped out at me: Zillow announced their acquisition of StreetEasy for $50M in cash. I also heard it simultaneously on the show Bloomberg Surveillance. Their CEO Spencer Rascoff will be on the show tomorrow morning to talk about the acquisition.

While there will be lots of prognosticating about Zillow‘s entrance into the NYC housing market through a heavily used resource like StreetEasy (Zillow was here already, just not taken very seriously).

I think there’s a bigger story for Zillow. If Zillow leverages the StreetEasy data presentation model, Zillow will be shaking up the housing market real estate information space across the US.

Think highrise urban housing markets – I call them “vertical” markets (not to be confused with “vertical” in marketing parlance).

• All national data aggregators and brokerage companies haven’t yet figured out vertical housing markets yet in terms of their presentation of information.
• MLS systems remain firmly single family orientated and have yet to present data in highrise markets in a visually logical way – ie co-ops and condos. Symbolic of the general primitiveness of MLS systems in handling multi-unit housing, one MLS system in the NYC metro area still tags “co-ops” as “condos.”

Kudos to Streeteasy for shaking up the market from day one. When they launched, StreetEasy became the housing data resource of choice for most in NYC. I met most of the team a while back and I was impressed with how a small group of people could really shake things up in a huge market. While presenting clean data in a very dirty data environment continues to be a challenge, I think their greatest contribution to the housing market has been how they displayed their information – in a way that consumers screamed for.

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Talking Case Shiller on Bloomberg TV’s ‘Street Smart” with Betty Liu/Adam Johnson

May 29, 2013 | 11:57 am | bloomberglogo | Public |

Yesterday’s release of the Case Shiller Index prompted a flurry of coverage given the 20-cities’ highest YoY increase in 7-years. I did a three way split interview from a remote location in CT (see studio set up below). I was a guest along with Vincent Reinhart, chief US economist at Morgan Stanley and Stan Humphries, chief economist at Zillow Inc. Betty Liu and Adam Johnson kept the conversation going.

I especially liked Stan’s modification of the Case Shiller Index results which excluded foreclosures and his research on low and negative equity (my explanation for low inventory right now). The drop in foreclosure activity over the past year caused significant skew to the mix. According to Stan the index would show roughly a 5% increase YoY rather than an 10.9% increase. A huge difference and yet another reason why this index does more harm than good to our understanding of the housing market.

Vincent’s observation that seasonality is considered in Case Shiller is basically wrong – not technically wrong because the data is seasonally adjusted. However the methodology of a repeat sales index washes out seasonality. If you look at the Case Shiller chart, there hasn’t been “seasons” in housing since 1987. That’s simply not true. The Case Shiller Index does not reflect annual housing cycles.

Since Case Shiller Index lags the signing of contracts by 5-7 months, expect to see much higher YoY results this summer.

How the sausage is made

Bloomberg TV is always great to work with – they arranged for me to use a remote studio in CT through a third party. Here is what the studio looks like. Amazingly primitive but it works!

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Zillow Gets FTC’d Despite Randomness Of Their Inaccuracy

October 31, 2006 | 8:23 am | nytlogo |

Zillow has been the punching bag of many of late, and perhaps its simply backlash from the large amount of free publicity they got after launch. It generated a lot of buzz to the point where bloggers were so sick of talking about them that they swore to abstinence (from Zillow) for a while.

People have had a chance to use the site for a while now and are beginning to realize how inconsistent the results are. Very accurate in some markets, very inaccurate in other markets and a lot of markets in between so you don’t quite know when and where the results are accurate. The results can be like snowflakes: pretty to look at, but the results for each search can provide a random result. They publish the ratings but I am sure the consumer doesn’t refer to them very often. And seriously, 52% accuracy in NYC means the results should not be published, should it? I have commented on this before since I am in the valuation business.

Zillow is such a neat concept on paper, but in the end, all data goes into a black box and spits out a number. They over promised and should have moved slowly over the country as they felt comfortable in each market. The logarithms that create the “Zestimates” are proprietary and perhaps thats what drives the suspicion, combined with pretty significant inaccuracy ratings.

Despite what I think are best efforts on Zillow’s part, however, I suspect we are seeing the first of several attempts to shut them down or change their model, refuting the argument that since they disclose their inaccuracy, they can continue business as usual. Because of their high visibility, its likely to become a public relations coup for anyone that goes after them.

Damon Darlin writes about the complaint filed by the Community Reinvestment Coalition in his article A Home Valuation Web Site Is Accused of Discrimination.

In a letter sent by the National Community Reinvestment Coalition to the Federal Trade Commission last Thursday, the group asserted that Zillow’s Web site misrepresented home values and placed residents in low-income neighborhoods “more at risk for discriminatory and predatory lending practices.”

Here’s the complaint [pdf]

I don’t really follow CRC’s logic for taking this action since all markets are subject to various degrees of inaccuracy but its going to be interesting to see what the FTC does. I have seen this from my own personal experiences from family members in different parts of the country who have used the site.

Complaints are filed against appraisers for inaccuracy too, but unless there is negligience or fraud commited, its simply an opinion. I know first hand that data collecting in my urban market is often very challenging, and more difficult than in many surrounding suburban markets. Besides record keeping issues, one overlooked reason for the inaccuracy of urban areas is the challenge of valuation in a “vertical” market. Condos and co-ops stacked on top of each other is very difficult to automate.

Whats also really interesting, is the fact that they have been marketing to consumers in order to bypass the real estate professional, but recently the orientation has changed to try to be broker-friendly. This attempt to placate the brokerage community backfired recently and the pr spokesman for the NYT article contradicted themselves by saying:

[UPDATE]A Zillow spokeswoman, Amy Bohutinsky, said the site’s valuations, which it calls Zestimates, were intended for consumers and had never been marketed to real estate professionals. The company sees the tool as a way to empower consumers who in the past would have to rely on a real estate agent to make an estimate based on the sales of comparable homes in a neighborhood.

Is Zillow’s market ignorance in certain areas bliss? Thats up to the FTC, apparently.

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