Zillow’s claim has far less to it than meets the eye. For one thing, the Zillow Home Value Index describes itself as ” the Mid-point of Zestimate valuations for the US.” The Zestimate, for the uninitiated, is “Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value.”
Not only is the data suspect, though, but the comparison is laughable. Comparing the housing market from the Great Depression to today isn’t an apples-to-apples comparison. For one thing, far fewer Americans owned their homes then. According to the Census Bureau, home ownership rates in 1930 were about 47.8%. They fell to 43.6% in 1940 underscoring how millions lost their homes as their finances crumbled. Many of the homes counted in these figures were probably farms, which there are far fewer today. As of the third quarter of 2010, the home ownership rate was 66.9% when there are housing types such as condominiums which didn’t exist during the Roosevelt Administration. There is much more supply of housing as well, skewing the pricing comparisons.
Could housing prices really have dropped 26% since 2006? Maybe but the answer is not clear in Zillow’s data. The chart on the company’s blog only goes back to 1998, so it’s hard to see where the company derived its historical data. Perhaps that came from the Census as well. Zillow was launched in 2006.
What economists and Wall Street analysts often forget is that just because you can create fancy computer models doesn’t mean that the information they generate is relevent.
–Jonathan Berr
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