Zillow’s Breakeven Estimate – Garbage In, Garbage Out

breakeven estimate

Zillow’s latest Breakeven Horizon estimates offer another another interesting look at junk science. Since Texas is a non-disclosure state, that makes any analysis of home values more tricky for third-party aggregator sites like Zillow/Trulia. But then again, they have ads to sell. The show must go on, regardless of the facts.

Interestingly enough the Houston Chronicle offered up Zillow’s latest example of flawed estimates based on dubious assumptions without so much as a fact-checking glance or a dive into the methodology behind the numbers. It’s easy to understand why “fake news” is the order of the day when media outlets as large as the Chronicle skirt their journalistic duties and regurgitate crap science as fact.

The Zillow breakeven estimate is supposed to give us the number of years it would take the typical Houston home buyer to break even as opposed to renting a Houston home. For Houston Texas, Zillow surmises that it would now take 1.9 years before the accumulated costs of renting would exceed the cost of buying a house, an increase from the shorter breakeven horizon one year ago.

So what goes into that analysis? As it turns out, I’m not the only one who has noticed Zillow’s rather interesting methodology. Blogger Tim Ellis took Zillow’s estimates to task several years ago as disingenuous, with their conclusions based on optimistic assumptions. I would have to agree. I would also add that Zillow’s supposedly updated methodology still appears to be full of holes and optimistic assumptions.

For starters, Zillow’s breakeven estimate analysis shows a median Houston home value of $179,308. That certainly doesn’t square with the latest HAR press release showing a real median value of $221,000 in January 2017. But hey, what’s $40,000 or so between friends, right? I mean they only underestimate the home purchase price by 23 percent. Aside from the assumptions about property price appreciation, savings from property tax deductions and alternative investment options, there is also the glaringly obvious omission of the estimated property tax rate for Houston. All Zillow offers is this dubious drivel:

“We used the most recent property taxes paid by each household in the costs of owning a home as well as to compute tax benefits..”

I’m not sure exactly what tax rate that equates to, but I’m pretty sure it isn’t the reality Houston property owners are facing. Some estimates put the state’s average property tax rate as low as 1.81 percent. Other estimates put the average property tax rate for a Houston area homeowner at 2.25 percent if you are in Harris County and 2.38 percent if you live in Fort Bend County. Of course anybody with a brain and anyone who has purchased a Houston area home knows real property tax rates in Houston are closer to 3 percent of the value of the home. If you happen to be in a newer suburban property the property tax rate can be as high as 3.6 percent.

This means that Zillow again grossly underestimates the carrying cost of that Houston home purchase. It wouldn’t surprise me if the real Houston breakeven number is double what Zillow is claiming. But every day is a great day to buy a home, right?

 

Leave a Reply

Your email address will not be published. Required fields are marked *