How are forecasts calculated?

To understand Zillow Home Value Forecasts, you first need to understand the Zillow Home Value Index because that is what is being forecasted.  The Zillow Home Value Index is the median value of a home for an area. For example, take a look at the Zillow Home Value Index in your area.  The Zillow Home Value Index is available for many different geographic regions, including states, cities, counties, neighborhoods and ZIP codes.  
The Zillow Home Value Index can be used to compare the typical value of a home in one region versus another region. For example, you might want to see how your neighborhood stacks up compared with other neighborhoods in your city. The Zillow Home Value Index can also be used to track the median value of homes in a region over time. You can look up the percentage change of the home values in your neighborhood over the past month, quarter or year.  

What's the Zillow Home Value Forecast?

The Zillow Home Value Forecast is Zillow’s prediction of what the Zillow Home Value Index will be one year from now. Essentially, it extends the Zillow Home Value Index one year into the future. Of course, the Zillow Home Value Forecast is just a prediction, as we don’t actually know what will happen in the year.

Can you give me an example?

Sure. Let's take Seattle. The December 2012 Zillow Home Value Index for single-family, condo and co-op homes in the city of Seattle is $392,200. The Zillow Home Value Forecast for December 2013 is $419,400, an increase of 6.94 percent. In other words, Zillow forecasts that the median home value in Seattle will increase by 6.94 percent over the next year.

Is the Zillow Home Value Forecast available for my area?

The Zillow Home Value Forecast is available for most regions for which the Zillow Home Value Index is available. Like the Zillow Home Value Index, a forecast is produced for a range of geographic breakdowns, including core-based statistical areas (CBSAs), states, cities, neighborhoods and ZIP codes.

How do you create the Zillow Home Value Forecast?

The Zillow Home Value Forecast is based on a statistical model using a variety of economic data. The model takes into account economic and housing data that might have an impact on future home values.  For example, a lower mortgage rate reduces the cost of owning a home, which in turn raises the demand. This will eventually lead to an increase in home values because more buyers are competing for the same housing supply.

Exactly what information do you use to create the Zillow Home Value Forecast?

We use data on a number of housing indicators as well as general economic indicators. The housing indicators include the mortgage interest rate, property tax rate, construction costs, number of vacant homes, percentage of loans that are subprime, percentage of delinquent loans and supply of homes for sale. The general economic indicators include the change in household income, population growth and unemployment rate.

How can you combine all the data to create a forecast?

That’s where the statistical model comes in. We use the past history to “train” the model in order to predict the future. The actual model used is fairly complicated, using techniques for econometrics and time series modeling. The details of the methodology can be found in this research brief

How accurate are the forecasts?

Economic forecasting tries to predict the future. This can be hard, especially when unforeseen events occur that affect the economy and the housing marketplace. Still, in periods of stability, the forecasts give a reasonable prediction of what will happen. For example, the forecast for Redding, CA is for home values to increase by 10.7 percent from November 2012 to November 2013. The median forecast error for Redding, CA over the past six years, which spans the housing boom and bust, is 3.4 percent. In the past two years, when values have been more stable, the median forecast error is just 2.8 percent.  Either way, barring unexpected events, we can reasonably expect values in Redding, CA to increase between 7.7 percent and 13.7 percent. See here for more details about forecast accuracy.

When is the Zillow Home Value Forecast updated?

The Zillow Home Value Forecast is produced around the middle of the month at the same time we update the Zillow Home Value Index.