Do you tune in to NASCAR for the crashes? Hockey for the fights? "American Idol" for Simon Cowell's smack-downs? Then you may want to keep an eye on the U.S. housing market in the next year or so.
Yes, just in time for what may be a meltdown, you can really watch.
The housing market has always had its cycles, but it's never really been possible to observe the financial ebbs and tides while they're happening. (Especially those painful ebbs. Your real estate agents, bless them, never call to say your house is plummeting in value.) In fact, people used to celebrate the fact that they couldn't watch the price of their home bobbing up and down like the Dow Jones Industrial Average. The benign myth was that housing never crashed precisely because home owners didn't know whether their homes were losing value and, thus, didn't panic.
Enter two new freebie Web sites that allow you to monitor the value of your home. Last week, Internet Brands, the company behind the popular auto Web site CarsDirect.com, unveiled a house-valuation tool on its RealEstateABC.com site. The tool uses proprietary algorithms to estimate the value of your home based on assessors-office data about your house, median home prices in the area and recent sales of comparable homes nearby.
RealEstateABC’s effort follows the breakthrough introduction earlier this year of the better-known Zillow.com, which uses similar methods and had 2.8 million unique visitors in February, according to Comscore Media Metrix. These aren't the only realty valuation Web sites — others include HomeGain.com, PropertyShark.com and LendingTree's Domania.com — but RealEstateABC and Zillow do all the computing for you. And they're free and don't require you to register. Type in your home address, and within seconds you've got an idea of what your house would sell for — and what you could buy your neighbor's house for, too.
It's not quite like typing a stock ticker symbol into Yahoo! Finance. It's not as accurate, for one thing. The people who work on each site admit they're up against outdated statistics and bad information in various city and county records offices.
But they've designed the sites to allow you to sharpen their estimate by changing the set of homes that your house is being compared to and correcting bad information about your house. With some tweaking, the outputs can be surprisingly accurate, says Donald Kelly, a public affairs man with the Appraisal Institute, an industry group based in Washington, D.C.
"There isn't a bank in the world that would make a loan from a Zillow valuation, but I love it," Kelly says. Zillow's estimate of his own Fairfax, Va., home's value is about accurate, he says. (Its site was way off on of his mother's home, due to inaccurate data about her room count and square footage.) "As long as everybody keeps in mind that buying real estate is risky, Zillow is a wonderful Saturday-night parlor game that gets people interested in real estate. That's good for us."
But will the parlor game be as fun to watch if prices begin falling?
The real estate market may be entering a downswing now. Affordability is the problem. First, there are the higher prices themselves, and second, higher mortgage rates.
The ten-year U.S. Treasury bond has edged up to a two-year peak, so mortgage rates have crept up rather painfully. The classic 30-year fixed mortgage demands interest of 6.5 percent these days, up from 5.8 percent three years ago. That tiny little shift is crushing. Consider the monthly carrying cost of a median-priced home in, say, California. (Assume, for simplicity's sake, a 20 percent down payment and a 30-year mortgage.) The monthly debt service plus property taxes on such a house three years ago was $1,800. Today, it's running near $3,200.
Something's gotta give, right? There's evidence that the carnage has begun, albeit mostly in a few overheated condominium markets. Foreclosures nationally are up 45 percent in a year. The number of half-million-dollar-plus condos up for sale in Miami is twice the number in Los Angeles, whose population is four times as large. In New York, prices reportedly slipped 13 percent last summer. In Las Vegas, several developers have canceled projects amid soaring construction costs, spurring suits.
The U.S. Commerce Department said on Feb. 27 that the supply of unsold, newly constructed homes across the U.S. had ballooned to 528,000 in January, up 60 percent from the average from 1995 to 2004. If the pace of buying doesn't keep up, prices will fall. What then? Will home owners watching their houses' values sink on the Internet rush their properties onto the market, making the pain worse?
And will we still tune into E.W. Scripps' HGTV or the vast amounts of home-improvement programming on PBS, the Learning Channel and The Walt Disney Co.'s ABC? (The real estate boom gets more television time than college basketball these days.) Will HGTV's hit show "House Hunters" be as fun to watch if you know that the happy couple is likely, on paper, to see the down payment they worked so hard to save wiped out in a tumbling market?
"I think our show will be successful regardless of the market," says the show's host, Suzanne Whang. Her first book, "Suzanne Whang's Guide to Happy Home Buying", will be published later this year. And the actress and comedian happens to have a master's in psychology from Brown University, so she knows how an audience thinks." They're watching the show for the emotional charge of buying that first house and the voyeuristic thrill of watching people go after their little piece of the American Dream. It's not about prices."
Zillow and the like, she says, might even increase the obsession with real estate. After all, she notes, bathroom scales didn't put an end to dieting. "It may not be healthy, but people like watching their weight go up and down," she says.