Let's take a brief look at some of the pros and cons of each index. (If I leave anything out, please mention it in the comments.)The big advantage of MRIS is that, unlike Zillow, it is a measure of actual sales. By comparison, Zillow is measuring its own appraisals. If those appraisals are wrong, then Zillow's index is wrong. If you look at enough properties in Zillow, it becomes quite apparent that a sizeable minority of its Zestimates are screwy, making huge price changes in short periods of time. Furthermore, many homeowners edit their home information on Zillow to inflate the size of their home, often listing the lot size as the home size.
However, Zillow's use of appraisals also gives it an advantage over MRIS. Specifically, Zillow is closer to being a constant-quality index than MRIS. A significant amount of the drop in MRIS's measured prices may come from the fact that far more smaller homes have been going into foreclosure than bigger homes. That means more smaller homes are selling, which suggests that some (much?) of the price decline on the MRIS graph is due to the changing mix of homes for sale. MRIS may be overestimating the decline in overall housing value in Prince William County (and the entire D.C. area).
A second strike against Zillow comes from the fact that its Zestimates today are based on comparisons with houses that have sold in the recent past. This probably makes Zillow a trailing indicator, while MRIS is probably much more up-to-date.
In the end, I'd say that MRIS probably overestimates the decline, while Zillow probably underestimates it. Zillow's measured decline in home prices is simply not enough to be compatible with the S&P/Case-Shiller Index. I'm not ready to claim that Prince William County's home prices are back to inflation-adjusted pre-bubble levels, but I hope they are. Prince William County should reach pre-bubble levels before other Washington, D.C. metro area jurisdictions, though.
Thoughts?
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