From the Wall Street Journal:
How Good Are Zillow’s Estimates?
In the year since its launch, Zillow Inc. has made millions of Americans familiar with computer-generated estimates of home values, created a new online addiction and become a staple of dinner-party chatter.
But just how accurate is it? A Wall Street Journal analysis of 1,000 recent home sales shows that Zillow’s “Zestimates” often are very good, frequently within a few percentage points of the actual price paid. But when Zillow is bad, it can be terrible — off the mark by more than 25% on one in 10 homes. In one case it was off by $2 million.
Zillow, based in Seattle, operates a Web site that offers free estimates and other online tools for real-estate buyers and sellers. It draws revenue from online advertising.
The Journal looked at transaction prices recorded for 1,000 recent home sales in seven states, using data from First American Real Estate Solutions, a data provider in Santa Ana, Calif., and compared those prices with Zillow estimates, which didn’t yet reflect the sales. The median difference between the Zillow estimate and the actual price was 7.8%. (That was close to the 7.2% median “margin of error” reported by Zillow itself on all transactions involving homes whose value it has estimated.)
The estimates were about equally split between ones that were too high and those below the mark.
Zillow came within 5% of the price in a third of the transactions studied by The Journal. It was more than 25% off target on 11% of them. In 34 of the 1,000 transactions, Zillow was off by more than 50%.
Zillow had estimated that a four-bedroom, 7,600-square-foot home in Fall City, Wash., was valued at $661,756. The home, built last year, sold in early January for $2.7 million. “If you don’t visit the property, you’re never going to know that it’s in an exclusive, gated part of the neighborhood,” says Maria Danieli, who represented the sellers. Ms. Danieli says Zillow may be fine for “cookie-cutter” neighborhoods but “they can’t compute” the values of the luxury homes she sells.
Zillow executives acknowledge that the estimates can be way off in some cases. The estimate “is a starting point” for people trying to figure out how much a home should cost, says Amy Bohutinsky, a spokeswoman for the company. “We don’t recommend it as the final word.”
…
Zillow’s estimates come from a proprietary computer program that takes into account sale prices for nearby homes that appear comparable, the size and other physical attributes of the home, its past sales history and tax-assessment data, says Stan Humphries, vice president of data and analytics.Zillow tends to work best for midrange homes in areas where there are a lot of comparable houses, he says. It is less accurate for low- and high-end homes because there are fewer of those and thus less data available from comparable sales, known as “comps.” Values of rural homes are hard to gauge for the same reason. Partly for that reason, none of the Web sites can offer 100% coverage of U.S. homes; Zillow says it has estimates on about 57% of all homes.
Even where there are numerous apparent “comps,” computer programs like Zillow’s can stumble when vital information is missing. Data fed into the computer, for instance, may not reflect the fact that a house has just been remodeled, destroyed by fire or put into foreclosure. Reported prices can be misleading, too. Sometimes homes are sold between family members for a token price, or sellers offer incentives to buyers, such as help with closing costs, that aren’t reflected in the recorded price.
Grim (from last thread)-
Missed Roubini on Kudlow today. Had to shovel out.
Any great new revelations?
from S&P equity research
>
A Sinking Sensation for Subprime Loans
The default rate for borrowers in the sector has jumped faster than anyone was expecting, raising risks for housing and the overall economy
http://www.businessweek.com/investor/content/feb2007/pi20070214_954191.htm?chan=top+news_top+news+index_businessweek+exclusives
The trickle of bad news in recent months resembles a slow-motion version of 1998’s credit crunch following Russia’s debt default of that year and the unraveling of hedge fund Long-Term Capital Management.
Small cracks in the mortgage-loan books at some of the nation’s largest banks have begun to appear as well. Subprime home equity loans drove material increases in overall mortgage losses for Citigroup (C), JPMorgan (JPM), and Wells Fargo (WFC) in the fourth quarter of 2006, according to research by Standard & Poor’s Credit Markets Services.
Should buyers find it more difficult to qualify for mortgages, that could add to builders’ woes at a time when many of them are suffering from a glut of unsold homes and falling land prices
Total delinquencies for RMBS transactions issued in 2006 averaged 12.61%, and loans considered seriously delinquent averaged 5.97%, according to research by Standard & Poor’s Credit Markets. And there are reports that jitters are hitting the derivatives market as buyers and sellers of mortgage credit protection battle it out, says Action Economics.
I hate to open the thread with a totally off the track comment, especially a long one, but here it is anyway.
I’ve been looking at all kinds of numbers for what is happening in the RE market right now and I happened to pick up the Otteau Q4 numbers for Monmouth County today.
It has nothing to do with what I’m working on, but I noticed that there are nearly twice as many homes for sale in the county now then at the end of 2002. The stock of SFH/condos since then could not have grown even 10%.
Obviously there are big profits to be had by selling, but people do need to live somewhere.
I’ve always been skeptical about all the talk of people leaving the state in droves, but this really stuns me and will make me rethink my beliefs on that.
Profit can’t be the only motivation for selling, and there have been some large scale layoffs (Lucent, ATT&T, Telcordia), but I think there is something more to it than that even. Any ideas?
Any great new revelations?
The end is nigh. He seemed very concerned about subprime shakeout.
jb
#3
global warming? :)
From Reuters:
S&P puts 11 mortgage bond deals on downgrade watch
Standard & Poor’s said it may downgrade ratings on 18 securities from 11 mortgage-backed bond issues sold by units of companies, including Goldman Sachs Group Inc. (GS.N: Quote, Profile, Research) and New Century Financial Corp. (NEW.N: Quote, Profile, Research).
The bonds are backed by subprime and second-lien mortgages, and so-called alt-a loans, whose credit is considered between prime and subprime, S&P said.
“Many of the 2006 transactions may be showing weakness because of origination issues, such as aggressive residential mortgage loan underwriting, first-time home buyer programs, piggy-back second-lien mortgages, speculative borrowing for investor properties, and the concentration of affordability loans,” S&P said in a statement.
…
Regarding Zillow,
As a realtor it is helpfull to me in one (1) way. There are times when I am asked to list/or give a CMA on a property in an area I am unfamilar with, ie I can look up colonials in town but I don’t know what streets are close by or which are in different sections. I usually decline but before I do I use zillow to give me surrounding homes and blocks, do a cma based on the homes in the area and see how close I am. I am usually on the mark.
KL
I need to clarify – I do not use there zesstimate I use there map.
KL
There=their
Big downward revision to GDP coming
The U.S. economy was growing much slower in the fourth quarter of 2006 than the government’s first estimate of 3.4%, economists say
http://www.marketwatch.com/news/story/big-downward-revision-gdp-coming/story.aspx?guid=%7B7A8E709C%2D918E%2D4D90%2D8904%2DA94998CBD72A%7D
According to zillow, my home lost $100k in value over the past 30 days, woohoo!
Zillow is really bad for condos.
I sold 119 Turlington Ct in 07039 in 2006 for $475,000 after purchasing it for $450,000 in 2004, but zillow comes up with an estimate for $618,000.
Although I can’t complain, when I went for a HELOC, Bank of America and Chase each appraised it at over $600k using the same kind of computerized appraisals.
Nothing like being able to borrow 125% of the property’s value at prime.
Zillow is a great tool to see prior sales info for a specific house, and also prior sales for neighboring houses.
The “zestimate” is just one of the features they provide, and it’s more of a novelty at this stage.
Look at the factual data they provide, such as prior sales, and where they occurred in relation to a property you’re looking at.
Their maps are also more accurate than Google maps for an address, pinpointing the exact house location every time (they must do this with human-aided help).
fed? :)
I took a wild guess today about contractual terms of the CMOs. I guess I was on the money………”….severe and unexpected..?” f—— hacks!
WSJ
Mortgage Hot Potatoes
Banks Try to Return High-Risk Loans To the Originators
By CARRICK MOLLENKAMP, JAMES R. HAGERTY and RUTH SIMON
February 15, 2007
Efforts by major banks and Wall Street firms to unload bad U.S. housing loans are speeding up a shakeout in the subprime mortgage industry.
As more Americans fall behind on mortgage payments, Merrill Lynch & Co., J.P. Morgan Chase & Co., HSBC Holdings PLC and others are trying to force mortgage originators to buy back the same high-risk, high-return loans that the big banks eagerly bought in 2005 and 2006.
Merrill demanded in December that ResMae Mortgage Corp. — which in 2006 sold it $3.5 billion in subprime mortgage loans, or loans to borrowers with poor credit records — buy back $308 million of loans whose borrowers had defaulted. In a filing this week for bankruptcy law protection, ResMae said those demands “crippled” its operations. The Brea, Calif., company said that repurchase requests were “severe and unexpected.”
As more subprime lenders face losses or bankruptcy, big banks also face another problem: Many lent money to small firms like ResMae so that those firms could make more mortgage loans to borrowers. It isn’t clear how much of these loans will be paid back to the banks. Wall Street firms also are increasing their own internal generation of subprime loans by acquiring smaller mortgage loan originators or processing companies.
In 2005 and 2006, banks such as HSBC and brokerage firms like Merrill Lynch went on a buying spree, snapping up subprime loans from typically small mortgage banks that had lent money to homebuyers. At the same time, many lenders were loosening their credit standards and making riskier loans.
HSBC kept many of the loans, while Wall Street firms chopped the loans into pools sold to investors as mortgage-backed securities.
In recent months, as home-price appreciation fell and borrowers faced rising interest rates, more people defaulted on their mortgages. That prompted Merrill Lynch and others to exercise their contractual right to demand the sellers buy back the loans. Under mortgage contracts, mortgage originators must often repurchase loans that default very early in their term or that come with underwriting mistakes, such as flawed property appraisals.
“Following early payment defaults, we exercised our contractual rights to return loans to ResMae and protect our financial interests,” a Merrill spokesman said. HSBC declined to comment. J.P. Morgan declined to comment.
Yesterday Accredited Home Lenders Holding Co., a subprime mortgage lender based in San Diego, reported a loss of $37.8 million for the fourth quarter, partly due to heavy repurchases of dud loans from large loan buyers, compared with a year-earlier net income of $43.3 million.
Accredited uses credit lines from eight financial institutions to fund its mortgage lending. Those lines of credit contain covenants that could allow the lenders to demand prepayment of the outstanding balance if Accredited has two consecutive quarters of losses, the company said.
Accredited already has received waivers in some cases on those covenants and will need to seek more waivers from the lenders if the company remains in the red during the current quarter, it said.
Investment-banking firms and investment firms that bought mortgage-backed securities are hiring firms to scrutinize subprime portfolios for loans that violate contracts.
Clayton Holdings Inc. is working with a half-dozen investment-banking firms to identify loans that should be repurchased. Clayton has also been hired by two hedge funds to review mortgage bonds they own for potential repurchases.
“Nobody was doing this in earnest before late last year,” says Kevin Kanouff, president of Clayton Fixed Income Services, adding that he expects the volume of putbacks “to trail off in the third or fourth quarter. The carnage that you are seeing…is not over.”
In a push to recoup losses, HSBC, which last week added $1.76 billion to its bad-debt costs for 2006 to cover ailing mortgages, has sued several small lenders in federal court in Illinois after they refused HSBC’s repurchase requests.
Got to listen to this guy tonight……excellent speaker
“How The Federal Reserve Impacts Investment Strategy”
Come hear Steven R. Malin, Assistant Vice President responsible for external communications of the Federal Reserve Bank of New York speak about:
The factors that most influence FOMC decisions
What “Fed-Watchers” read and do
Trends to follow when looking long-term
Why the economic forecasting has improved
Malin said point blank that the eventual (not imminent) blow-up will likely come from an international source……
cf #15,
I really don’t understand. Why does the bear story sound so different from the bull version? Is it just the way the story is told, or is the story itself different?
Even the astrologers are predicting doom and gloom. LOL
>>
http://www.luckydays.tv/stock-market-predictions-for-2007-2008.html
Regarding the world stock markets, I only have one thing to say. I believe they are beginning to move into the final stages of the peak of the upcycle. By 2008/2009 when the Moon’s North Node moves into Aquarius, which has been shown to indicate periods of supercycle troughs (Louise McWhirter’s theory) I expect the Dow to be trading at around 5-6000.
Utah mall gunman was Srebrenica survivor, cousin says
http://www.cnn.com/2007/US/02/14/utah.mall.gunman.reut/index.html
Cousin: Sulejman Talovic fled his village with his family during the Bosnia war
• After family fled, some 8,000 Muslim men and boys were killed
• Cousin remembers Talovic as “a nice kid, maybe a little bit playful”
• Talovic family did not keep in touch after moving to the United States in 2000
njrebear Says:
February 14th, 2007 at 11:19 pm
cf #15,
I really don’t understand. Why does the bear story sound so different from the bull version? Is it just the way the story is told, or is the story itself different?
Bear: what is the bull story? [the truth please ;-)]
njrebear #20,
Wonderful, now we have muslims randomly shooting up little girls at US shopping malls…