Homeowners Getting More In-Line With Reality Of Home Values

The most recent study by Quicken Loans Inc. of homeowner value perceptions revealed that the disparity between appraiser and homeowner opinions of home values narrowed in January for the fifth consecutive month.

While home values have generally increased since 2011, homeowners’ perceptions of home values have become inflated relative to appraiser valuations in the past year or so.

Homeowners’ Price Perception

In the study, the difference between homeowner estimates of home worth and appraiser valuations was measured using Quicken Loans’ Home Price Perception Index (HPPI). The HPPI was determined by comparing the difference between the homeowner’s estimated home value as listed on the mortgage application with the appraised value of the home.

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Historically, homeowners tend to over-estimate the values of their homes. However, the HPPI indicates that appraisals, on average, consistently exceeded homeowners’ estimates throughout the second half of 2013 and most of 2014. Since late 2014, homeowners’ estimates of home values have once again consistently exceeded appraiser estimates. In January, homeowners over-estimated the value of their homes by only about 1.7 percent.

Appraisers’ Valuation

The Quicken Loans study also compared the trends for HPPI to those for Home Value Index (HVI), which reflects only the appraised value of the home.

The national HVI has been mostly on the rise in recent years, but it declined by about 0.4 percent in the month of January. Both HVI and HPPI were calculated using Quicken Loans’ mortgage data from over 3000 counties across the United States, including four geographic and 27 metropolitan areas.

Valuation By Location

While average home values in the United States have risen 3.3 percent since January 2015, home values in the West have outpaced the national average, climbing 5.4 percent during that time.

With regards to HPPI, overall appraiser valuations in many of the metropolitan areas surveyed have exceeded homeowner perceptions during the past year. The cities in which homeowners have most underestimated the value of their homes include San Jose, San Francisco and Denver.

The SPDR S&P Homebuilders (ETF) XHB has underperformed the broader market this year, returning -7.3 percent year to date.

Disclosure: The author holds no position in the stocks mentioned.