Hick: Forbes has some explaining to do

Denver Mayor John Hickenlooper today joined the chorus of critics unhappy with a Forbes.com article that ranked Denver as the second-worst home sales market in the country. The article claimed that the metro area has an inventory of 42,000 unsold homes, which is more than double what is listed by Metrolist. (For an earlier blog about that story, please visit this link.)

“That is just insane,” Hickenlooper told InsideRealEstateNews.com. “I’ll send them a letter. I’ll call them and demand that they justify where their data came through and walk us through it, or write a correction. If they can’t justify it, it is just plain reckless and can have very serious consequences.” Indeed, one broker today said that he has received more than a dozen calls from agents who work for him that have received calls from concerned home buyers. Others say that articles such the one in Forbes.com could have government agencies such as Fannie Mae could again declare the Denver area as “declining market,” causing mortgage rates to rise and making it more difficult to obtain loans.

Reporter explains story

Meanwhile, the author of the Forbes.com article, Francesca Levy, sent InsideRealEstateNews.com an e-mail today to put her article into perspective. She relied on information from Zillow.com, a popular online service that lists millions of homes for sale across the country, as the basis for her article.

“I’ve gotten a lot of response from folks in Denver about this article and completely understand why the metro’s inclusion on the list would come as a surprise,”  Levy wrote. “I understand that these numbers don’t jibe personal observations of many realtors and perhaps the local data that’s available to them. By many measures, as you know, the Denver market is doing quite well, and certainly it’s doing well relative to other metros. But this story was based on a fairly narrow set of metrics in which Denver showed a big change over time. There are many different standpoints from which to look at the market, and inventory/sales rates are only a couple of them.” Levy went on to say that one reason she uses Zillow is because it is “extremely hard to find solid inventory data from anyone besides Zillow that compares large MSAs across the country. I’m always looking for new data sources, and I like to be able to compare the same metrics from different data providers – unfortunately that’s hard to do with inventory, since the information is scarce.” Levy added that her story had stirred so much response, that she is “tempted to do a whole story” on what is going on in the Denver market. She also said that her story said it was only tracking single-family home inventory, but it also included condos, so she will ask Forbes to issue a correction to clarify that point.

Zillow stands by 42,000 figure

Katie Curnette of Zillow.com, said that she believes the 42,000 figure in Levy’s story was accurate for the 10-county are she tracked: Adams, Arapahoe, Broomfield, Denver, Douglas, Jefferson, Elbert, Gilpin, Clear Creek and Park. The data includes homes listed by agents, owners, foreclosures and new construction. There may be some double-counting and overlap in the numbers. For example, if a home in foreclosure or a new home that is listed by a Realtor, may be included in both categories. Also, some homes may not be removed immediately from Zillow.com after they have been sold, although Zillow.com encourages Realtors and home sellers to change its status to ”closed” as soon as a home sells. And once public records reflect the sale, Zillow.com will change its status. Local economist Patty Silverstein examined the Zillow.com data and found only 31,740 homes of all kind listed for sale in the 10-county area, about a third lower than what Forbes.com reported. And Silverstein is skeptical that the number of listings are exaggerated, and don’t accurately describe the actual unsold inventory.

“While I know that Zillow.com is frequently used, I question its reliability as a statistically sound time series,”  Silverstein said. ‘Do we have more homes listed today on Zillow.com than a year ago because of increasing popularity of use as opposed to an actual change in inventory? What is their procedure for removing homes from their “for sale” list? Do we truly know that every property listed as for sale is still for sale, or is it possible that it sold but was not removed?” Curnette, of Zillow.com, answers those questions by saying:  “What this really shows is a snapshot of what is listed on Zillow.com at any given moment in time.”

YOY change not apples-to-apples comparison

Perhaps more importantly, however, is the 27 percent increase in listings reported by Forbes.com, at a time when Metrolist is reporting a drop in listings. “The number of homes on the market is important, but what is probably more crucial is that percentage change,” Silverstein said. The latest MLS data shows a total of 20,574 homes for sale in the Denver market, virtually unchanged from March 2009.

“I wouldn’t put much stock in the year-over-year change,”  Curnette said. ”What that represents is that we are getting more partners (usually brokerage firms) that are reporting more homes for sales, than an actual change in the market.”

When InsideRealEstateNews.com told Hickenlopooper that the Zillow.com year-over-year database had expanded, and wasn’t an apples-to-apples comparison, he thought that should have been a red flag to Forbes.com.”That’s absurd,” Hickenlooper said. “The very fact that the source of their data makes the year-over-year comparison useless, suggest that Forbes should not even have considered writing a story based on that. What kind of a reporter wants to make a story out of useless data? It’s one thing if they are reporting factual data. Forbes is generally considered a very reputable organization. But reckless reporting can haver some very serious consequences for the housing market and overall economy. I think what is odd about it, is that it does not seem to fit into any context. All of the other data we are seeing pretty much indicates that we are going in  the right direction, and suddenly this one comes out of left field and says we have one of the two worst housing markets in the country.”

Niederman: MLS better data than Zillow’s

Peter Niederman, an owner of the Kentwood Cos., agrees. Niederman also thinks that the Metrolist data, which uses the same methodology month-over-month and year-over-year, provides a true picture of the real estate market. Overall, it shows slightly more than a 5-month supply of unsold homes, which is generally considered a stable, healthy market, he said. He described the Forbes.com article as “very poor reporting and sensationalizing a story when it’s not there.”

“The main difference, the accuracy of information,” Niederman said. “I know we have received calls on properties buyers saw on Zillow or Trulia (another service similar to Zillow) , when we check the MLS, they have been long sold, or they are off the market. Realtor and other MLS members subscribe to the accuracy of information as part of the participant agreement. There is no governing body to main the accuracy of the information (on Zillow or Trulia.) Zillow and Trulia are wonderful ways to market homes, but they really aren’t very good as far as databases on what is actually happening in a market.” He also said it’s crazy to lump market-rate homes, foreclosures and new homes together. They’re throwing in the kitchen sink to report all the inventory when it’s never been reported that way before,” Niederman said. “If we went back and aggregated the same information as compared to today, the total inventory may be far less than it is today"Jack O’Connor, a co-owner of RE/MAX Alliance, said today he has fielded more than a dozen concerns from agents who have clients that are concerned about the Forbes article.”I haven’t heard of anyone not buying a home because of the article, but it certainly is troubling,”  O’Connor said. “I have no idea where they came up with the 42,000 number. Their article is not only misleading, it’s flat wrong. All of our inventory figures say it’s lower than it was 12 months ago, when Forbes listed Denver as the 2nd best place to buy a home. How it has gone from the second best to the worst, at a time when the market has clearly gotten better, does not bode well for their credibility.”

Fear that market will suffer

O’Connor also said that he worries that Denver, which a few years ago was considered a “declining market,” by government agencies such as Fannie Mae, could cause mortgage rates to rise, and make loans harder to get in the Denver area. “You worry that an article like this can become a self-fulfilling prophecy. The perception created by Forbes can become the reality,”   O’Connor said. In 2008, large lenders such as Wells Fargo, decided that Denver no longer was declining, and could offer its best rates to well-qualified home buyers.

Curnette of Zillow.com said that there are signs of “double dip” in Denver, with home values rising a bit in 2009, before falling again this year. ”Of course, that is tempered by Denver’s relatively flat trajectory,” Curnette said. “Denver’s median home value peaked in May 2006, and since then, home values have fallen 10.8 percent. Compare that with the U.S. as a whole: Home values peaked in June 2006, and have since fallen 23.8 percent. The Denver metro area is an interesting one: It seemed to have been less affected by the run-up in values, and the subsequent downturn, than many other areas of the country. But it does seem to be affected by the larger recession…I would not say that Denver is the worst, or one of the worst, housing markets in the country.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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