Zillow’s New Neighborhood Section May Be Misleading

I have been reading and hearing a lot lately about Zillow’s new Neighborhood Market Health Section of their website.  As a real estate professional I think this new section may mislead the public about the actual health of their local real estate market.

Here are the facts.  Zillow is basing the health of an area on the below 10 factors according to Teka Wiggin of Inman news:

1. Month-over-month change in the Zillow Home Value Index (ZHVI).
2. Year-over-year change in ZHVI.
3. Percent change in one-year ZHVI forecast.
4. Percentage of homes selling for a gain.
5. The number of days listings spend on Zillow, adjusted for seasonality and for deviations from historic norms.
6. The percentage of mortgage holders with negative equity.
7. The percentage of mortgage holders delinquent on their loans.
8. The number of foreclosures out of 10,000 homes.
9. The percentage of sales composed of previously foreclosed homes.
10. The number of foreclosures out of 10,000 still held by banks.

However, the health of an area can be based on only 5 of these factors if Zillow doesn’t have all 10.  Zillow will also not cover every area of the United States, they will only cover areas that they can compare to 3 other markets.

Here is why the information can be misleading.  Your area may have a low score because it is surrounded by highly productive markets.  Since you score is based off the comparison of what Zillow is calling similar markets, your neighborhood’s score can be low.  Your neighborhood’s low score is then not a reflection of a poor market, but rather a market that is less healthy than an above average market. Zillow seems to be aware that the scoring can be confusing.  On their own press release for the new section they said “a low Market Health Index score does not necessarily indicate that a market is performing poorly, only that other markets are experiencing factors like higher home value appreciation or lower foreclosure activity.” Though Zillow is using many indicators and is right to compare surrounding markets to get more accurate information, that does not mean that the results are easy to understand. Users need to be keenly aware that they need to dig deeper into the results and not take them for face value.

Also, Zillow may not have access to all the sale data when compiling their scores.  Zillow is not privy to every home sold, they only have access to the public information and the information they gather from real estate agents.  For example Zillow does not even have record that a property I just sold in Hartsdale even exists, let alone was sold.  Since they don’t have a record of my listing even existing they can’t know if the home sold for a gain or loss or the number of days it was listed for. I’m sure this was not a one off property as I have seen this many times with my own listings.  It is important to know that data is missing when Zillow compiles the scores so you understand that there is a variation from what Zillow is saying the health of your neighborhood is to what the actual market is saying the health of your neighborhood is.

Overall just remember that like Zestimates, the Zillow Neighborhood Health Section should be used as a jumping off point.  Your local real estate professional will have more accurate data information from their Multiple Listing Service as well as advise about how the market is looking in your area.  Zillow may be able to tell you what your neighborhood is experiences at this very moment, but they won’t be able to advise you on what real estate professionals are seeing and expecting for the future of your market.