We live in a real estate-obsessed culture. Few economic topics reach the masses in the way that housing does. Whether it is house prices, rising rents, mortgage rates or gentrification, everyone is in the housing game to some extent. It is one of the most followed, but sometimes least understood, sectors of our economy, where conventional wisdom and cultural norms don’t always mesh with economic realities.
Zillow Chief Economist Stan Humphries and CEO Spencer Rascoff have published a new book, Zillow Talk: The New Rules of Real Estate, that points their massive data trove at common real estate topics, sometimes debunking common myths or shedding light on economic realities that aren’t readily apparent.
Humphries and Rascoff are fans of Steven Levitt and Stephen Dubner’s Freakonomics, calling it “one of our favorite books.”
If you read Freakonomics, you’ll immediately recognize the genre here. Rather than a monotonous recitation of economic stats, each chapter picks a commonly-held belief or frequently-asked question about real estate. The authors geek out on statistics about the topic and then give us an “aha” moment that either sheds light on something we haven’t thought about or debunks conventional wisdom. While not as provocative or incendiary as Freakonomics, the style works well for real estate and makes for a fun and educational read.
The book is filled with useful topics. Should your buy or rent? Turns out it depends on which city you live in and how long you plan to stay there. Buying a home in Seattle, for example, makes financial sense after 1.9 years, while in Boston it takes 4.0 years. Or did you know that home prices appreciate faster when there is a Starbucks nearby? Apparently homes near these latte vendors appreciate faster. And what about street names? Suprisingly street name suffixes like “Way”, “Place” or “Court” correspond to higher home values than if you live on a “Street” or “Road.”
There are some must-read chapters in here for homeowners, as well.
Real estate agents know first-hand that overpricing a home leads to negative results, but it is the most common mistake in real estate. Stan and Spencer crunch the numbers and show you why you’re not “leaving money on the table” by pricing it right, and the best strategy to follow when you do overprice your home. Anyone with a mortgage should read the section on fixed-rate versus adjustable-rate mortgages. Despite what you may think, the 30-year fixed mortgage isn’t the best option for everyone.
The authors even tackle a couple of thorny housing policy issues, with conclusions that don’t match what the media and politicians have told us for decades. Expanding home ownership into low income brackets via subsidies has been a recurring theme in US politics, and it turns out that the policy has historically done more harm than good for the folks it was purported to help. The ever-popular Mortgage Interest Deduction costs the government $100B and is actually highly regressive, helping the wealthiest of homeowners, but providing no benefit to the little guy it is supposed to help.
The book is not without its flaws. A chapter on listing descriptions measures how using particular words to describe your house can affect your sales outcome. There are lots of fun insights here, like the fact that a home called “cute” averages 1,128 square feet, one called “quaint” averages 1,299 square feet and one called “charming” is 1,487 square feet on average.
The authors point to words like “unique” or “nice” that correlate to lower sale prices and other words like “impeccable” or “luxurious” that drive higher sale prices. However, in an era of photo-driven real estate apps, I think it is more about the photos than the verbiage, and pointing to any meaningful causation from the words used in the description feels like a stretch.
Chapters on buying the worst house in the best neighborhood and calculating the actual discount you get when buying a foreclosure are loaded with great insights. The data is pretty clear that you probably shouldn’t buy the worst house in the neighborhood, and the discount on buying a foreclosure isn’t what you think it is. That said, the book gives short shrift to what the savvy real estate investor might do, which is to totally redevelop the worst house on the street, or actually buy a home at a foreclosure auction where discounts do exist, provided you understand the risks. The book could also use more insights about the actual home buying/selling process.
So why publish a book when you are an online juggernaut?
According to Humphries, “We wrote this book as an extension of what we do every day at Zillow – provide people with housing data, analysis and insights so they can make smarter real estate decisions. Writing a book enabled us to share information in a different way than we are able to do on the site. We were able to share our personal real estate experiences as well as provide anecdotes and tell stories to help people better understand the new rules we are putting forth.”
Rascoff elaborated on the process of writing the book. “The whole project was in the works for over two years and took much more time than either of us expected, but it was a labor of love. It has always been a life goal of mine to write a book.”
Overall, I recommend the book. It is an entertaining and informative read and gets you thinking about the housing market like a geeky economist. It has plenty of valuable insights for prospective or current home owners and is perfect for when you want to be the real estate smarty-pants at the dinner party or water cooler.
Editor’s Note: Kevin Lisota is a member of the Zillow Agent Advisory Board.