Now that home prices have dropped nationwide, home price indexes are multiplying faster than bogeymen at a campfire. The reason they're worth watching is some indexes have an agenda. And that could be to scare homebuyers away.
It's bad enough that the housing industry has to contend with the heavily biased Case-Shiller Indexes, which supply data for housing hedge funds, now Zillow, the online real estate community, is telling its own version of housing ghost stories.
The question is why. Zillow's home value reports cover home values, not solds like most housing indexes. The home values are created by Zillow's secret sauce of county records, market value estimates based on asking prices, and other ingredients. These Zestimates show that in the first quarter 2008, home values, not prices, fell 1.6 percent from the fourth quarter 2007, and 7.7 percent from Q1 2007.
Yikes, that's terrifying! The report continues the campfire scarefest by tracking how many sellers owe more on their mortgages than their homes are worth.
Yes, campers, Zillow says that half the homeowners who purchased during the market peak in 2006 are upside down.
And if you bought in 2007, you're not much better off -- 45 percent of you are underwater. In fact, a large percentage of you are upside down all the way back to 2004.
This is headline-grabbing stuff. My hat's off to Zillow and their nimble minds. They've found a way to keep themselves in front of the bloodthirsty financial press with scarier data than falling home prices.
Home values are the new bogeyman!
But before you drive away with a madman's hook in your car door, or with a puddle left in your back seat by the lady of the lake, consider this -- home values and home prices aren't the same thing. What homes sell for are real numbers. What homes are valued for are not.
For example, Zillow says that home values have retreated in Detroit all the way back to 1998, and are down 24 percent from the market peak of Q4-2005.
That's scary, but is it useful? RealComp, the MLS that serves the Detroit metro says, it can't refute Zillow's numbers because they don't track values, they track sales.
In April, home sales have actually gone up nearly 15 percent, says Realcomp. In fact the entire MLS is up for the fourth straight month. The city of Detroit is up 48.22 percent over last year. Why, because home prices were down in April by over 32 percent, from $135,000 in 07 to $91,318 in 08. That's being driven largely by foreclosure sales. In April 08, 4,671 homes sold, 1,683 of which were foreclosures.
The outlook for pending sales is even greater. Contracts have been signed but not closed on 6,822 homes in the MLS, an increase month-over-month of 27 percent.
If you were an investor in homes, which report would mean more to you? Zillow or an MLS?
So the next time you read a home price report, think - is this helping me or the company that's putting out the data?
That's the surest way to tell the truth from an urban legend.