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Home Value Estimates Confuse, Disappoint Homeowners



By S.E. Slack

Along the East Coast, year-over-year home values remained sluggish. Most towns, such as the Queen City, continue to record growth in the low single digits. Yet some recent reports claim that, nationally, home prices are continuing to rise at 12 percent or more. Many homeowners are disappointed that their home values aren’t matching up to those eye-popping expectations.

The discrepancy is due to an inflated sense of national home value appreciation because of inherent biases in reporting processes, according to Zillow. In particular, high home values are reported by the S&P/Case-Shiller Home Price Indices, which are the leading measures for the U.S. residential housing market.

The confusing piece for homeowners is that Case-Shiller’s tracking primarily involves large, coastal metro areas that are currently seeing enormous home value gains. Plus, it includes foreclosure resales. Because of those two key items, that index is currently forecasting annual real estate appreciation at the rate of 11.4 to 12.1 percent nationally. Inland homeowners and those in areas with few foreclosures typically won’t see high appreciation rates.

The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices. The increased prices usually don’t express market improvements. Instead, prices improve because the sales are no longer distressed.

Other reporting firms take a more modest approach when tracking residential housing. That approach better explains why home values in parts of Florida, like Gainesville and Tallahassee, recorded little to no increase in the last 12 months. Using Zillow’s approach instead of Case-Shiller’s, many Florida homeowners should expect only to see low single-digit percentage increases in home values through 2014.

The good news? Most markets already hit a bottom, states Zillow. Sixty-five out of the 251 markets it covers are forecasted to experience home value appreciation of 4 percent or higher.

[Last modified: Wednesday, January 29, 2014 5:00pm]


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