In my neighborhood, it's all over the place. As I've always said, Zillow's attempt at pricing (house price now rents too) is a nice idea, but they just don't get the right answers. When they do it's more coincidence than anything. As the bubble was bursting, they were ridiculously off, to the point that the pulled all their history at one point and "re-did the algorithm". Again, I like the idea but whatever they are doing to calculate, it's way off.
Any seller or landlord who uses it as a reference to justify a price is just plain wrong (and I'd tell them so). Same goes for renters or buyers. It's not like cars, NADA guide, etc. I used to use NADA for used cars because that's what banks used to determine loan value.
I picked a few places in my n'hood and in the past 5-6 months I see rentals varying by 25% or more. That's not reality.
I think they scrape a lot of data and then attempt to do some sort of averaging. Thing is, in places like the SFBA historical data is completely whacky and I think new data will continue to be 'unstable'.
In fairness to Zillow, I would guess this works in more stable markets. It's probably accurate in Iowa (are they even present there?).