Last week a colleague introduced me to an interesting real estate valuation website called Zillow. When you enter an address into Zillow, the site maps it and shows you some general information about the house, such as square footage and number of rooms. It also estimates the value of that property, and the values of properties adjacent to it. You can even get an estimate of how much property tax is paid on that house. As a bonus, the site also allows you to search for houses for sale and see recently closed deals and their valuations.
How accurate is the information on Zillow? Well, I am not sure, but I checked the one house I know best of all, my own. The general information, such as number of rooms, baths, and square footage, was all correct. Now for the interesting part. Zillow estimates the price of our home to be a jaw-dropping $914,000. The amazing thing is that our house is not even a house. It is a town house, built in 1972, with 3 bedrooms. Granted, we live in a very expensive part of the Bay Area in California, but still, that price is ridiculous.
Regular readers of this blog know that we don't own our home, we rent. Now get this: our monthly rent is $2,000. Granted, according to Rentometer our rent is low for our area, but still, the return our landlord is generating on equity (if all the numbers are correct) is 2.6% per year. To be honest, I think the value of the property is probably exaggerated, but even if our rent was $2,500 per month and the property is worth only $750,000 the ROE is only 4% per year, and that's before expenses, such as property taxes, association fees, insurance and many others.
To me it seems obvious that buying in the Bay Area does not make economic sense at this point. We will continue to stick with renting, at least until rental prices go up dramatically or real estate prices decline.
If you get a chance, check out Zillow and tell me if you think that the information it offers is accurate. At the very least you'll burn an hour trying to figure out how much your neighbors paid for their houses...