The Zestimate Deficit
If you’re anything like me, you probably spend more time on Zillow than you’d care to admit—daydreaming, mostly. But after enough scrolling, you start to notice the patterns: some houses sit on the market for months, with price cut after price cut.
Yet this isn’t the case for every property. Despite rising mortgage rates, home prices in many areas continue to climb. What’s causing this mismatch? I believe it’s a case of low supply driven by a new seller mentality I like to call the Zestimate Deficit.
How Did We Get Here?
Years ago, the price of your house was much more nebulous. If you bought a home for $300,000, that was essentially the only price you had to work with. Sure, you might get an idea of your home’s value if a neighbor sold their house, but you didn’t really know until it was time to move.
When you finally sold, maybe you discovered your home was worth $400,000. Great! You’d made $100,000, and you could move on to your next home without much fuss.
Enter Zillow’s Zestimate.
Now, tracking your home’s value is like tracking a stock. There’s an estimate up 24/7, ready for you to check as often as you like. In theory, it’s just a number—but in practice, it feels like gospel. Zestimate says your house is worth $450,000? Fantastic! You made $150,000, even if it’s just an estimate.
The Deficit in Action
When it’s time to sell, you get your home appraised—and it’s worth $400,000. You’ve made $100,000, but it doesn’t feel great this time. Thanks to the Zestimate, it doesn’t feel like you’ve gained $100,000, you feel like you’ve lost $50,000.
Maybe you refuse to accept the appraisal and list your home for $450,000 anyway. Month after month, the price drops as buyers pass over your listing. Eventually, you either sell for less than you hoped or pull the house off the market entirely.
In either case, this psychological mismatch—between what sellers think their home is worth and what buyers are willing to pay—contributes to today’s low housing supply. Sellers cling to Zestimates, reluctant to list or lower their asking price, which keeps inventory tight even as demand persists.
Expectations are powerful. They can completely change how you respond to the same incentive. Understanding people’s motives, expectations, and incentives is key to understanding economics.
