It's the data, stupid.

As I said, I recently wrapped up reporting on an article that is now running in the Boston Sunday Globe. The piece started -- back in January -- as a look at Zillow's Make Me Move feature, which at that point had been out there for a few weeks and attracted a few hundred Boston area home owners. As I worked with my editor at the Globe on the story, however, the focus broadened to include Zillow's cousins -- Trulia, Redfin and especially a new site: Cyberhomes.com.

So what did I learn?

First of all, that data is truly the coin of the realm when it comes to Web-based real estate sites. Cool graphics and nifty map integrations are great, but these days Java and AJAX programming is a commodity. Cyberhomes CIO Marty Frame told me that his developers were able to build their site in around four months (which may explain the fact that the site didn't support Firefox in its first iteration). At the end of the day, visitors to your site are fickle and what's going to stick them to you is the depth and quality of the data you offer about their house, their neighbor's house, or the town where they live or want to live.

As my article makes clear, Zillow's Make Me Move is just a means to an end to get this kind of rich property data -- photos, improvements, additions, walk-through videos, whatever. The site that can aggregate that data and combine it in novel ways with the least effort and at the lowest cost is the site that will draw eyeballs -- nifty haircuts notwithstanding.

The second realization I had was that, at the end of the day, none of these Web sites -- Zillow, Cyberhomes, sitetobenamedlater.com can stand on their own for long. What are they, after all, but slick facades on the sausage factory that is the home selling and buying process in this country? Sure, we could dream that user friendly Web sites might some day disaggregate realtors from the home buying process, and turn the entire industry into a FSBO version of eBay, with informed buyers and sellers interacting on nearly level ground. Folks like Tom Russell, a wired and savvy homeowner in Cambridge, Massachusetts, who I interviewed for the Globe, certainly imagined this kind of environment to be preferable to the old route of calling an agent and sticking a sign in your yard - -especially if, at the end of the day, you're holding on to an extra %3 to %5 in commission costs. The reality is that we're not anywhere near that place. Zillow netted 12,000 Make Me Move prices in the first month, then took another two plus months to double that figure. Hardly a run away success. To this day, Make me Move homes and home listings are still just 1/10 of one percent of the 70,000,000 homes Zillow claims to track, while Zillow is trumpeting zany haircuts as a recruiting tool -- which may be like the Silicon Valley equivalent of Jumping the Shark (shaving the shark, anyone?).

Three years from now, the vast majority of buyers and sellers will still look to traditional agents to find property and broker sales for them, even if they're using Web sites to narrow their options and direct their steps to open houses. This, of course, isn't news to executives at any of these startup firms. In just the last week we've seen Trulia come in from the rain by teaming up Realogy to offer home listings. And with something like $60 million in VC, but few ways to generate revenue beyond online advertising, it's hard to imagine many paths to profitability for Zillow's investors that don't involve some high-multiple hookup with a larger entity -- Google, which is already melding Google Base to real estate services, or Yahoo (desperate to get its mojo back) or Microsoft (sitting on a mound of cash and keen to be a spoiler to any deal with Google).

So what are these cool new sites good for? Lots of things, according to Marty Frame of Cyberhomes -- provided you've already got a lot of products lined up to sell through them. Frame, who spent years as CTO at Realtor.com before moving over to Fidelity National Information Services to be CIO of Cyberhomes, was one of the more astute observers of the Real Estate 2.0 scene that I spoke with. When I asked him the "Big Question" -- how do any of these sites make money? His response was as fast as it was eye opening: They don't, in and of themselves. As he explained it, Cyberhomes is a cool, free service that tells potential home buyers and sellers a lot about properties and the communities they're located in. It also tells its corporate masters, Fidelity Information Services, and Fidelity National Financial, an awful lot about people who may be interested in their products.

"Ultimately our goal is that, by being useful to consumers on an anonymous basis, we can provide access to products they're looking for at the lowest cost basis," Frame said. "We provide home ownership services that home owners need. (Cyberhomes) allows us to make ourselves useful in terms of the decision process owners are engaged in. Then, based on their use, we can work through our partners to make them an offer that's appropriate to what they're trying to encounter."

In the end, seeing a huge industry incumbent like Fidelity start to put the pieces together like that behind a slick front end like Cyberhomes.com can't be good news for Zillow and the countless startups that are jockeying to be the 800 lb. gorilla of the online real estate market. Because, basically, Fidelity already is an 800 lb. gorilla: sole owner of a massive database of property, appraisal and market data for nearly every property in the U.S., issuer of 1/3 of all title insurance policies, owner of extensive property analytics and automated property appraisal IP that is already in use by industry professionals.

In the next twelve months, big data aggregators like Fidelity will be taking the gloves off and tuning up (or buying up) some of the nascent sites we've all been writing about with new features that really go deep into that data. That'll be a good thing for consumers -- providing better access to more reliable data and more accurate appraisals and research tools. It probably won't be good thing for those investors who saw the makings of a real estate revolution in Web 2.0 startups like Zillow, Trulia and Redfin.

Boston Globe on the online appraisal game

So I've got a story in today's Boston Sunday Globe about the difficulty many Web sites are having determining accurate home values, and on some of the different approaches sites like Zillow, Cyberhomes and My-Currency are taking to solve the problem. It's not a perfect, but worth a read for no other reason than its look at the seminal problem of inaccurate property data, and how that effects the ability of all these sites to offer reliable estimates of home value. There's also a quote in there from Joel Burslem of FutureofRealEstateMarketing.com (thanks, Joel), Marty Frame, CIO of Cyberhomes.com and Karim Tahawi of My-Currency.

Reporting and writing this article also got me thinking about what a thorny problem the "rich data" thing is for all these sites, and how that might ultimately determine who are the winners and losers in this fast-changing Web real estate market.

More to come on that...

S&L 2.0?

The New York Times has two stories this weekend that should be red flags to anyone who thinks that the mortgage industry isn't staring into a large, swirling abyss in the form of shaky loans in the subprime lending market, and that it might take more than market forces to fix the problem.

First up is news of trouble at Yet Another Subprime Lendor. Of course, we've been hearing about problems in the subprime market for months now, ever since the Fed started raising interest rates, putting the pinch on homeowners with exotic ARMs and other creative financing arrangements. Hell, there's even a whole blog just for people curious about imploding subprime lenders. Up to now, most of these firms have been bit players: Silver State Mortgage, Eagle First, Ivanhoe. This time, however, its one of the big fish that may be caught in a net of bad loans. According to the Times, Federal prosecutors and securities regulators are investigating stock sales and accounting errors at New Century Financial Corporation, a Real Estate Investment Trust (REIT) and the largest subprime (or, as they call it "non prime") lender in the U.S. Concerns about New Century emerged in early February, after the company warned that it would need to restate earnings for three quarters. New Century's troubles deepened later in the month, after it said it was the subject of an investigation by NYSE into some fortuitously timed options sales by leading executives.

According to the Times, New Century's fate now seems to rest in the hands of Wall St. lenders, since the delay in filing its quarterly earnings has but around $17billion in credit lines in jeapordy. New Century will have to convince its Wall St. lenders to grant it waivers to avoid a cash crunch that would almost certainly sink the company, a la Enron. That kind of backing is doubtful, if New Century's business plan is really as murky as this post suggests (link courtesy of the Implodometer).

The second red flag comes from Times columnist Gretchen Morgenson, one of the most astute business writers around. As she notes in her column for tomorrow's Sunday Times (subscription required), Wall Street's efforts to discount the troubles at New Century and other lenders as a problem that's limited to the subprime lending market don't add up.

The troubles disclosed last week at Countrywide Financial and American Home Mortgage Investment show that the credit crunch that is bringing down lenders like Silver State and New Century are beginning to seep into the mid tier lending market, too. According to Morgenson, American Home Mortgage said 8.13 percent of its loans held for salewere non-accruing, compared to 0.43 percent in 2005.

Morgenson also wonders whether to believe lenders' numbers for the percentage of defaulting mortgages, noting that lenders often go to great lengths to create "workout" plans that avoid foreclosing on homeowners. In theory that's a good thing --except when it's clear from the start that the homeowner in question won't be able to follow the workout plan or recover their footing enough to get right with the lender. In that case, lenient repayment schemes just constitute a form of welfare for unworthy borrowers who plan to declare bankruptcy, but are gaming the system in the meantime -- in one case, to continue to make payments on a Mercedes Benz that were in access of the mortgage payments the borrower was foregoing. :-<

The picture that's emerging from all these stories is of a mortgage industry that is based more on fantasy than reality, and that is sadly in need of reform and, in some cases, of closer scrutiny from regulators before the U.S. economy faces a 21st century version of the S&L crisis of the late 1980s (cost, ~ $150 billion) that helped sink the U.S. economy into a recession and, by the way, brought a booming real estate market to its knees.