Profile picture for Tigervet

Dear Person,What use can I make out of the data showing changes in home values? Thanks.

Again, historical changes in housing prices do not predict future changes. For example, if a home has appreciated in value 40% over the past 5 years and 10% over the past year, is that better than a home whose value has appreciated 90% over the past 5 years but 0% over the past year? If this data is not used predictively, what is it's value or intended use?

Thanks very much.

D. Baker
  • January 01 2009 - Baton Rouge
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Answers (8)

Profile picture for blue screen exile
For rental property, what matters is your income to expenses ratio, very little else.  You do need to factor in your downpayment when you do this calcualtion as that money could have been invested in something else that would earn interest.

Some look at the rent to buy ratio, using a 30 year fixed mortgage and similar sized units with similar ammenities.

It doesn't matter if a property appreciated or depreciated, as long as you will be turning a profit.  Now if there are defered maintenance issues, obviously you have to factor those into your expenses.

If you are expecting to liquidate the property after a given time frame, make sure you factor in your loan initiation costs and all the realtor costs.  And again, the Z-estimates flucutate too much to be able to determine any appreciation from those trends, use the Z-Index trends instead.  If the buble trends indicate you can buy the same property next year for half as much, why would you buy now, even if you did turn a small profit?  Wouldn't you have a larger profit if your initial costs were half as much?

  • January 01 2009
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Profile picture for kittenonkeys
Thank you for clarifying.  I think the appreciation value is based upon current market conditions as well as the location and the condition of the house.  For example, in our central Louisiana market, houses were appreciating from 5% to 8% per year prior to the past year, when appreciation dropped to just under 2%.  Other areas dropped to zero or even depreciated.

So when investing, keep these things in mind.  When the market stabilizes, both houses should continue to appreciate if they are well-maintained.  The rate will depend upon location.  Real estate as a rule does not depreciate IF the market is stable, the condition is good and updates are added periodically, and the location is good.
  • January 01 2009
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Profile picture for Tigervet

Thanks to each of you who answered my question. Please let me clarify. I am interested in purchasing a rental property. Should it matter to me that one home has appreciated 40% in the past 5 years and 10% in the past year, versus a home that appreciated 90% in the past 5 years and not at all in the past year? Can I assume that the first home still has some appreciation "left in it" while the second home is not likely to appreciate further?

Thanks again.

D. Baker

  • January 01 2009
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Profile picture for sunnyview
I think Pasa is completely right when he says "Though the Z-estimates are not very good at future forecast, the Z-indexes for an area calculated from ALL the Z-estimates for the area are VERY helpful for predicting future TRENDS (not values)"  That is the real useable value that I have seen for myself. Personally, I use the Zindex far more than the Zestimates. .
  • January 01 2009
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This is a multi part answer to a complicated question.  One of the largest contributing factors to a decrease in home value are the numerous foreclosures caused by the lending that was done during the previous 3-5 year period to less-than-qualified parties that were unaware of how grossly their mortgages would adjust coinciding with their inability to refinance (that is a whole other discussion).  Chances are that if your home is in good condition, has seen some improvements and can be  compared to other homes in your area that are in the same condition and have sold within the last year, you may find it has not lost the kind of value being reported in the press.  If you are in an area with numerous foreclosures, you may want to consider waiting to sell, and even using some of your equity (if you have more than 20%) to purchase some of those foreclosures to use as income property and increase your real estate portfolio  There is a way to stay positive in any market and remember that all investments markets, including real estate are cyclical and we will see more regular pricing within 2-5 years.
  • January 01 2009
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Profile picture for blue screen exile
But there is another reason for watching the Z-estimates.  Namely if one is expecting to pay estate taxes on them, and is looking to estimate the estate taxes, and whether the taxes are going up or down.  Sure, one can get a CMA (Comparative Market Analisis) or a formal Appraisal every few months, but it gets tedioius, and most of them still won't agree.  And Appraisal will still be needed at time of death, and will run about $500.  But who wants to keep spending that money just to get an idea where things are?

Personally, I like the estimates as it makes it possible to consider shopping the entire country for a potiential change in resident location and to see how much cash I may be able to get out with such a move.

  • January 01 2009
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Profile picture for blue screen exile
Though the Z-estimates are not very good at future forecast, the Z-indexes for an area calculated from ALL the Z-estimates for the area are VERY helpful for predicting future TRENDS (not values).

For example, say the values in the area were steadily rising substantually faster than the inflation rate, but the rate of rise was leveling off, and getting close to zero.  And say similar "bubble areas" saw similar trends six months earlier, but are now rapidly declining....  The trend would indicate the bubble is about to pop and that the market is at peak, and you better sell as quickly as possible to cash out your profit, or just plan on staying watching your imaginary equity dissappear.

  • January 01 2009
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Profile picture for kittenonkeys
I believe the value of the data lies in determining current market value of homes in a particular area so that if you live there and are contemplating selling your home, you don't have unrealistic expectations of its worth.  By the same token, if you are wanting to buy in an area, you also have some idea of price range.  All of this lays the groundwork, but in no wise is intended to replace the value of a good REALTOR who will sit down with you and show you specific properties currently active or pending as well as recent sales--a true picture of what the market is currently supporting.  This should be done both with buyers contemplating offers as well as motivated sellers listing their homes.  Hope this helps!  Let me know if you have other questions.
  • January 01 2009
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