Trillions still to be lost in home value?

That’s what Zillow says. They’re looking at the national picture, not just Greenwich, but I’m sure not seeing any rebound around here.

19 Comments

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19 responses to “Trillions still to be lost in home value?

  1. Anonymous

    How long can unprotected wood sit exposed to the elements and still remain viable as a building material? New construction on a very large residence in my neighborhood was halted late last winter, and the mostly framed-in wooden structure has sat there ever since with just a small fraction of it protected by Tyvek. In the meantime the exposed wood has taken on a whitish-bleached appearance.

    I had thought that this failed project would be torn down, but recently someone has covered the structure with tarps and more Tyvek, so they’re apparently going forward with it, but can the wood underneath that has had this degree of exposure to weather extremes ever be trusted not to rot or to be otherwise compromised?

    If the place is completed as it is and marketed as new construction, must potential buyers be apprised of its construction history?

  2. Inagua

    No rebound, but no further decline, either, right, Chris? From all the sales you have written about, the pattern seems pretty clear: prices about 1/3 off the high, but holding steady with very few transactions. Feels lousy for brokers because there are so few deals, but prices are no longer going down, right?

  3. FlyAngler

    Chris – I have a bit of a problem without the entire Zillow model and it’s their profit motive. As noted in the linked article, Zillow is a “privately held” company and a little googling shows its owned by venture capital companies and management. These folks are not altruists and are driven by ROI which in the online business is measured by eyeballs and clicks. As in any VC backed concern, they are building a business looking for an exit. Retired IBr and others here know the drill.

    So this profit motive has to be kept in mind when reading any prognostications since, as in the Media, controversy sells. So back to the linked article which points out that Zillow’s view is relatively severe:

    ” Zillow’s findings contrast with reports by the Federal Housing Finance Agency, the S&P/Case-Shiller index and the National Association of Realtors, which show home prices found a floor in early 2009, said Walter Molony, a spokesman for the Realtors group.”

    Now one could argue easily that the Realtors have their own motives for putting on a rosey perspective. And we could say that the FHFA too has a motive to push a positive view. S&P and Mr Shiller himself are probably the least motivated to have a view either way. But they are all more constructive than Zillow on housing. Also, if you’ve been to Calculated Risk recently, you might of caught his piece where he is actually less negative on residential for 2011. Now that is saying something!

    So my problem with Zillow is at the company and investors have to maximize value which means maximizing site traffic and click-throughs to paying advertisers. Controversial predictions can draw such traffic and likely does. Also, more, rather than less, frequent changes to house prices on the site, draws traffic (I know because I go there every time my house’s Zillow estimate changes or when new comps get listed).

    And that gets me to my problem, which is not at my Zillow piece s “too low”. no, my problem is that Zillow, in its own way, can have an influence on prices. Yes, I know your eyes are rolling because this is akin to what some outraged seller accuse you of, talking down prices. Sure, but you don’t control the algorithm that feeds the Zillow database. Do we doubt that their system can change the value of a street, zip code or town with a few keystrokes? Do not thousands of price alerts go out every time there’s a change in a region? If buyers are a hopping an area, do they not at least have Zillow valuation as one of their metrics?

    I might be pushing this a bit but prognosticators have a habit of having to make outrageous predictions if they want to stay in the spotlight. Elaine Garzarelli did it after she “predicted” the 87 crash. Meredith Whitney is trying to do it today. Peter Schiff is waiting to be right and has to damn the world to keep CNBC producers calling (who would call Schiff if he were to say gold has peaked?)

    All I am saying is that Zillow has to either go public or get bought by someone (Google?) at some point. My bet is it will be in the next year or two s they have to maximize traffic. But being able to help make their predictions look better is what bonded me, even if it seems implausible.

  4. FlyAngler

    Pardon my typos and misspellings on the last post. Typing in that little comment box on an iPad is tough enough using the Pad’s keyboard. Worse, scrolling back up to proof on such a longwinded post is too cumbersome. My apologies.

    And yes, “hopping” should read “shopping”.

  5. Old School Grump

    Generalized, big-picture stats like these just leave me confused. “Average” house sale price ups and downs in particular seem especially useless. A batch that happens to include a bunch of $2 million houses sold at $1 million will skew the average up if the batch that it’s compared to didn’t happen to have so many high priced house transactions in it. Also, the expiration of first-time buyer credits may have a lot of impact on sales volume but has zero impact on the higher priced inventory where the erosion of “value” is most acute. Hey, I was an English major, I have a hard enough time with meaningful stats, don’t mess up my head with bogus ones!

  6. The closely held provider of home price data Zillow is often wrong with their data. Probably correct that prices will drop nationwide but I believe those of us who own in Greenwich will be glad we do even if we purchased in 2006. Greenwich is still one of the safest areas to park your money if you are going to park it in a home. From October ’09 to October ’10 almost 57% more single family homes sold in Greenwich year to date. Granted, ’09 stunk, and only 10% over 2008 but at least we are going in the right direction.

  7. Peg

    I’m not a big Zillow fan myself. Still, I can read and see. Prices dropped in the Midwest over 9% the last year. Lord only knows how many short sales and foreclosures are waiting in the wings. Apparently “small” is becoming beautiful – so what to do with all those McMansions people built the last 10-15 years? (Remember folks; this is the real world – not Greenwich.) On top of it, as one of my friends said, younger people are starting to see housing as something that drops in value through time – not something that appreciates.

    The optimist in me says it will turn around at some point. We will have folks saying, “Why didn’t I buy in 2010 or 2011?” The worry wart in me wonders if my career will live to see this!

  8. anonster

    If zillow doesnt deliver value to customers nobody will want them at any price, hence, their reputational risk preference is to provide reasonable predictions. RE can easily drop 20-30% next year, even in Greenwich. A buyer’s strike coupled with some deflationary aspect will cause it. Just go look at PC prices if you dont think that happens

  9. shoeless

    Mortgage rates are up 1% in the last 60 days. That translates to a roughly 10% decline in house prices, as most of this country can’t even scrounge a 20% down payment. Case-Shiller is rolling over. Foreclosures and short sales make up 25-30% of transactions. Unemployment at 9.8% with the lowest labor participation rate in decades. Housing supply is a double-digit months. Did I miss anything?

  10. FlyAngler

    Peg:
    Not sure where you are in the mid-west but it might be time to buy a farm, or sell as the case might be:

    http://online.wsj.com/article/SB10001424052748704156304576003513500416454.html

    THE FARM BELT BOOM (WSJ)

    The overall U.S. economy may be struggling, but you wouldn’t know it from a visit to the Farm Belt. A boom is under way across much of the rural Midwest, with agricultural land prices growing at a double-digit clip and farm auctions in certain counties fetching record sales.

    One question to ponder: Is this boom rooted in genuine economic gains, or is it another Federal Reserve-induced asset bubble? We lean toward the bubble view.

    The Federal Reserve Bank of Chicago reported in November that farmland values across the upper Midwest have jumped 10% since 2009. The year-over-year increases were even more dramatic in some states—13% in Iowa, 11% in Indiana. Irrigated cropland is up 11.8% in Nebraska and 12.2% in Kansas, according to the Kansas City Fed’s most recent quarterly survey, which also relays this comment from one district banker: “Land fever is running rampant.”

    The signs of a land-grab mania are everywhere. The Des Moines Register reported this week that two tracts in O’Brien County in the northwestern part of Iowa sold for $9,700 an acre, while one land broker estimated that farmland has appreciated on average by about $1,000 an acre since the end of the summer. Reports of bidding wars and $2,000 an acre premiums for top farms are common.

    By comparison, Iowa farmland values averaged $4,371 per acre in 2009, and $5,321 for the highest grade properties, according to Mike Duffy, an Iowa State University agricultural economist who conducts an annual in-state farmland survey. He’ll release figures for 2010 next week, and the trend is expected to be higher.

  11. FlyAngler

    Peg – To your point on picking a bottom, can those of you in the RE business back in the late 1980s/early 90s compare and contrast the two markets? Where are we sentiment-wise? I bought my first house in Greenwich in 1993 from someone who had it listed for 3+ years (btw, we bought down 35% from his original listed price in late 1989). Any thoughts from Chris or other oldtimers in the RE business?

  12. Inagua

    Peg,

    Houses will never again be sure fire investments. The bubble was fueled by government intervention, which will be largely curtailed in the future — way less Fannie/Freddie/HUD financing, higher down payments (remember 20%?), and maybe a phased out mortgage interest deduction. Once houses are returned to their proper position as shelter, there is no reason why they should ever again appreciate any faster than the stock market.

  13. FlyAngler

    Shoeless – I had thought (hoped?) that when you bought you might have changed your view slightly and joined the rest of us delusional owners. Seems you are a man of integrity.

    As for what you “missed” – the bottom?

  14. shoeless

    Fly,

    LOL. I’m hoping my REO-discount makes up for the fact that we aren’t at the bottom, but nothing I can see tells me that we are on the rebound. I’m just hoping I have built enough cushion into my purchase to come out break even when the bottom is finally seen.

  15. Retired IB'er

    Like the man says, “Easy come, easy go.”

    I continue to be fairly negative on the overall prospects for the economy. While the FED has “saved the day,” I cannot see how it is anything other than a postponement.

    As relates to Greenwich real estate, the FED has specifically and massively targeted the stock market, which has clearly cushioned the blow to Greenwich real estate. The question becomes whether the stock market will continue to levitate at high levels or correct. If it corrects, Greenwich real estate is toast, and nicely burnt toast to boot.

    Will it happen, and when, I don’t know, but we are far from being out of the woods. The tragic part of all this is that it will play out in slow motion forcing us all to just get on with it as the chips fall where they may…

  16. HG

    House prices have only been flat measured in dollars. Measured in US stocks, they are down 11% over the past 12 months. Measured in barrels of oil they are down 20% over the past 12 months. Salaried workers I know have been getting 3% annual raises throughout the downturn, and that is consistent with union contracts signed even at the depths of the recession (I realize the income dynamics are very different for high end Greenwich buyers). That means that since 2006, house prices measured in wages have declined an extra 12% or so. These are real world price relationships that are at least as informative as houses to dollars.

    Two last points: (1) Prices were down a lot, now they have been flat for a while – isn’t this what turns in housing markets look like, similar to the early 90s trough mentioned above? (2) I don’t think you can call the price trend by looking at “supply” as people have defined it here. In fact supply of new homes is close to zero. If you compare this situation to commercial real estate busts that have happened more often in the past, it is supply of new construction that is a harbinger of coming price declines but when new supply is close to zero this is a decent indicator you may be near a price bottom. It is in fact when a large proportion of sales are distress sales or foreclosures in any market that prices are likely to be near a bottom.

  17. Retired IB'er

    Fundamentally I do not believe you can look to past history and draw any real conclusions about the current real estate market. I say this because of the massive intervention of the FED. We’ve seen nothing like this ever.

    Bottom line for real estate (and many other asset classes) is whether you think the US will be different than Japan. So far, we continue to be eerily similar.

  18. Oh gee

    A terrific website was written about in the Times. Much more fun than zillow. It’s historicproperties.com

  19. Peg

    Alas; I live in a ‘burb of Minneapolis, 20 minutes to high rises and no real farmland anywhere around me. Of course, a somewhat lengthier drive and yes; we have gorgeous farm country.

    I got my real estate license in 1980. When I began to sell, interest rates hovered at about 18%. That was pretty tough – but honestly? Nothing like now. The enormous difference I see in that market and this one is that people still wanted to purchase homes and had faith in the value of real estate. Today, many with whom I talk have soured completely on the concept of owning residential real estate. Between the dramatic drops in value in various areas – coupled with massive foreclosures – they simply do not want to purchase at any price.

    Now, I surely am hoping that this is a transitory state! Nevertheless, I have never seen such negativity about real estate throughout my career until now.