This post is for hardcore real estate numbers geeks who want to have all the data possible before they forecast future home prices.
I thought I knew all the national home price data sources so I was quite surprised last summer when I saw news articles talking about the “Weiss Residential Index” which I hadn’t even heard of.
Here’s the story. Allan Weiss was part of the team that in the early 1990s developed the famous Case-Shiller Home Price Index, the index that is featured in graphs here on this website.
About 15 years later during the Great Real Estate Bust, Weiss noticed that in his little town outside Boston about 10 homes were actually appreciating while everything else was falling in price. In that particular case, the 10 homes that continued to appreciate during the bust were the 10 cheapest homes in town. Apparently, the town had a great school system and the cheapest way to get your kids into those great schools was to buy one of the cheapest homes.
One zip code isn’t one market. That story showed Weiss that each metro area is really made up of many markets. The prices of large homes, for example, may not move in unison with medium-sized or small homes, and so on for the different attributes of homes. There are a bunch of different markets even within the same zip code.
So Allan created a company, Weiss Residential Research, in 2012 to develop the idea.
Weiss Residential Index
5,000 to 50,000,000. Their signature product is the Weiss Residential Index. It uses a “repeat sales index” like that used by the Case-Shiller Index. Weiss, however, estimates price changes for all homes in an area, not just zip codes like in the Case-Shiller Index. So they went from calculating a home price index for 5,000 zip codes to calculating a home price index for 50,000,000 individual homes.
Better than Zestimates. Weiss says their median error is less than 4%. For comparison, the median error for Zillow’s Zestimate of home values is greater than 8%.
Okay, but what does all this have to do with forecasting future home price trends?
Visualize the market. Using their index, Weiss shows us on maps the homes that are increasing in value as well as the homes that are decreasing in value – at least according to their Weiss’ estimates – so you can get a visual feel for the market.
Looking around corners. The idea is that as a real estate market approaches a top, for example, you’ll see more homes losing value and fewer home gaining value long before you’ll see home prices start to fall. Comparing the pluses to the minuses tells you how much the market likes the current home prices and where prices may be headed.
80/20. Let’s say 80% of homes in a metro area are increasing in value and 20% are decreasing in value. You can be pretty confident that home prices will be higher a year from now.
60/40. But if the market moves to where only 55% of homes are increasing in value and 45% are decreasing in value, the odds that home prices will be higher a year from now will be much lower.
The %-up / %-down ratio gives you an additional data point about the strength of the market and where home prices may be headed.
Leading Indicator of Future Home Prices?
That’s weird. Okay, the Weiss Index is super cool but it’s weird too because Weiss doesn’t publish a time-series of their numerical index values. I would love to see time-series of their index on the same graphs as time-series of home prices so I could see for myself if the Weiss Residential Index is a good leading indicator of future home sale prices.
Is it not good or too good? They probably don’t publish the numerical time-series for one of two reasons, either because their index doesn’t do well under a microscope or because it’s so good they’re selling that information and don’t want to make it public.
They also have Weiss Maps which are cool as you’ll see below but it’s very hard for a numbers guy like myself, even a very visual numbers guy like myself, to wrap my head around the accuracy of the Weiss Residential Index just by looking at a video and without seeing the underlying numbers.
Weiss apparently started a PR campaign this summer so they’ve put out a few numbers in press releases. That’s nice but it’s not enough data for me to judge if their Index is a good leading indicator for home prices or not. Right now I suspect it is a good indicator but I don’t know.
Weiss Map Videos
Awesome! One thing Weiss does that is absolutely amazing is they publish monthly maps for many metro areas and even zip codes showing how the Weiss Index changes over time in an area. They stitch the monthly maps together to create videos. Green means the estimated value of a home rose and red means the estimated value fell.
Visualize the bust. Weiss’ map videos are sort of a visual time-series so you can see the changes in home prices month to month from January 2006 to the latest month. I love that they show that some homes can be falling in (estimated) value even when home prices for an area as a whole are increasing.
Every home seller should watch the video for their area before pricing their home for sale because it gives a more accurate depiction of reality. All home prices in an area don’t move in unison. Just because home prices are increasing in your metro area doesn’t necessarily mean your home’s value is increasing. Your home’s value could actually be decreasing in a rising market.
Here’s the video for Los Angeles.
Red is falling prices. Notice that the red starts in the south and moves north. If you look at the video for San Diego, you’ll see that the red really started in San Diego and then moved up to Los Angeles.
To watch the video in full screen, start the video then hit the squarish icon in the bottom right-hand corner.
BTW. I’m particularly attracted to this type of visualization as you might be able to tell by looking at this visual history of the Phoenix real estate boom and bust I created in 2011. I, however, displayed the median sale prices for whole zip codes, not the change in prices for individual homes. Weiss’ visual histories are better than mine because his really make the changes pop out visually.
Play it again, Sam. Weiss’ map videos are absolutely fascinating! I’ve run the videos for metro Phoenix and Los Angeles over and over, stopping and starting the videos a zillion times to study the train wreck as red takes over the maps. It’s cumbersome but fascinating.
Leading indicators? Where did home prices first start to fall during the real estate bust? Should I be super sensitive to any changes in home prices in those bellwether areas since they may signal future home price changes for my metro area?
Home price forecasting. These charts didn’t exist in 2006 but if the did, they might have helped investors and homeowners determine when to sell and how to price their homes.
In the summer of 2006, prices on the periphery of Los Angeles were starting to fall while prices in the center were still increasing. Some sellers in the stronger areas no doubt thought, “That’s Riverside where prices are falling, I’m in Santa Monica, I’m going to hold out for a fair price, I’m not going to give it away! It only takes one buyer.”
Another seller might have thought, “Holy mackerel, call the real estate agent, lower the list price if necessary but get this house sold ASAP before prices start falling here, too!”
A year later in the summer of 2007, home prices were falling pretty much everywhere in metro Los Angeles, in both Riverside and Santa Monica.
To find the Weiss Map video for your area, go to WeissIndex.com and punch in your metro area and then your zip code.
Weiss Target Value Tool
The odds of selling at that price. Finally, Weiss provides another free service called the Target Value Tool where you punch in a home’s address, date purchased, price paid and the target sales price, and the tool gives you its estimated odds that the house will sell for that target price. This could be interesting to both home sellers and house buyers.
It’s cool that it gives the odds of selling at a given price instead of just estimating a single sales price like most websites. Giving the odds is a better reflection of the real world of real estate chaos.
I’m not crazy about the tool but it’s interesting, you should give it a try. I’m going to assume it’s better than Zillow’s Zestimates.
No cigar. It gave my home a 100% probability of selling at $300,000 but only a 1% chance of selling at $310,000 which seemed suspiciously accurate to me. We recently had the house appraised for a refi and it came in above $315,000.
Random thought. I wonder if Opendoor is using Weiss to estimate home values.
The Weiss Residential Index, Map videos and Target Value Tool are all cool tools the hard core real estate numbers geek should check out.
Epilogue. Allan Weiss would like investors to use his index as a tool to help them buy fractional ownership in residential owner-occupied homes in something akin to a reverse mortgage. I’m not interested in that but if you are, you can learn more about his idea here.
- Almost Half of Homes in New York and D.C. Are Now Losing Value
- Weiss Residential: Here’s where the next housing crash will start
So, what do you think of the Weiss Residential Index and the video time-series maps? Please leave a comment below.