Zillow real estate economist hacks homebuying with 20 years of data

A new book —​ Zillow Talk: The New Rules of Real Estate — aims to analyze 20 years of data to bust myths and provide new insight into property values.

Stan Humphries, author and chief economist at Zillow, a web-based real estate service, used data collected from the website to examine common assumptions about how to invest in property.

"Up to now, our real estate behaviour has been an area that's been driven by hunches and un-examined assumption as opposed to facts and data," said Humphries.

Here are some of the myths Humphries examines:

Myth 1: Buy a home in a great location

False.

When buying a home, many people look at neighbourhoods that are already trendy. But Humphries said homes in those hot spots have typically maximized their real estate values.

Instead, Humphries suggests to "wait for the cool kids to come to you" and buy a home close to those hot spots.

This insight was gleaned by noticing a radial pattern of increase in real estate values that he calls the Halo Effect.

Myth 2: Buy the worst house in the best neighbourhood

False.

A common misconception is that the worst house in the best neighbourhood will ultimately reach the same value as nearby properties.

Humphries and his team looked at homes valued in the bottom 10 per cent of their neighbourhoods, and how they fared over a 20-year period. Over time, they didn't close that gap.

"Generally, it's the worst house for a reason," said Humphries.

Myth 3: The Starbucks Effect

True.

Humphries looked at markers like parks and cultural amenities that could indicate if some homes would appreciate more than others.

Looking at data over a 17-year period, he found that homes within a quarter of a mile of a Starbucks appreciated 96 per cent, whereas homes in the same neighbourhood but outside that quarter-mile radius only went up 65 per cent in value.

Homes within a quarter mile of a Dunkin' Donuts increased 80 per cent in value over the same period.

To listen to our full interview with Stan Humphries, click on the audio labelled: Busting real estate myths with data