Zillow vs. Case-Shiller – What You Need to Know

The Freakonomics blog at the New York Times made an interesting point this morning about why Zillow’s housing price-index numbers show less decline in home prices than do the widely circulated Case-Shiller numbers.

The reason is that Zillow’s numbers don’t include the sales of foreclosed homes, and in some markets those make up a huge proportion of the market.  For example, in December 60% of all transactions in the San Francisco metro area were foreclosures.


This is important because the median price of a home that sells in foreclosure is typically lower than one that is not in foreclosure, as shown by the first graph in this Zillow article. (Clicking on the graph in the article brings up a more clear image.)


What strikes me is that they’re assuming that the red line consists of homes that were previously not in foreclosure and then were sold in foreclosure. 

 Here’s what Zillow says:

“By including foreclosure transactions in such a measure (as Case-Shiller does), you’re also looking at the depreciation of homes that were previously in the set of homes making up the black line, but went into foreclosure, thus becoming part of the set of homes making up the red line.”

In other words, the assumption is that they are comparing apples to apples, with the only difference being that the home went into foreclosure, which caused it to sell at a lower price.

They appear to not address the question of whether homes in lower price ranges are more likely in general to go into foreclosure to start out with.  If this is the case, then the foreclosed homes are selling at lower prices ranges not because of the stigma of being in foreclosure (which would skew the implied results of the data) but simply because these are lower priced homes to begin with.

Granted, there is a stigma involved in a foreclosure sale. But is it enough to explain all of the difference in sales price?

Thoughts?  If you think I missed something I’d like to hear about it.

Irene Nash

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