Home value perceptions continue to widen in February

Following a year in which homeowner estimates of their property's value hovered relatively close to the appraised value, expectations have gradually become too optimistic in recent months. However, the typical estimate continued to be within a small percentage of the value determined by an appraiser.

In the latest update of its Home Price Perception Index, the retail mortgage lender Quicken Loans found that the average appraisal in February fell 0.5 percent short of a homeowner's expectations. This was the fourth consecutive month where the gap between appraisals and estimates widened, though it was still slightly lower than the February 2018 average of 0.53 percent below expectations.

"Even through the home value perceptions are declining at a national level, the majority of metro areas are getting appraisals at, or above, what the homeowner expected," said Bill Banfield, vice president of capital markets at Quicken Loans. "This is particularly exciting news at a time when we are seeing heightened interest in cash-out refinances. More and more, owners are choosing to invest in their home by making improvements instead of moving. If appraisals are higher than expected, an owner could find it more comfortable to do those home improvements they always had in the back of their mind."

Homeowners in the West were most likely to have an accurate idea of their home's value, with the average estimate in this region falling just 0.22 percent below the appraisal. Average expectations were 0.4 percent lower than the appraised value in the South, 0.48 percent lower in the Northeast, and 0.79 percent lower in the Midwest.

Quicken Loans also looks at 27 major metropolitan areas in the United States to look at value perceptions in these cities. Appraisals were higher than expected in 17 cities, with the typical appraisal coming in 2.51 percent above a homeowner's expectations in Boston – equal to an additional $11,000 based on median home values. Average appraisals were 2.1 percent greater than expected in Charlotte, N.C. and 1.98 percent higher in Denver.

In each of the 10 cities where appraisals were less than expected, the average estimate was within 1 percent of the appraised value. The greatest differences were in Chicago (0.79 percent less than expected), Cleveland (0.7 percent lower), and Philadelphia (0.57 percent lower).

In addition to its home price perception analysis, Quicken Loans issues monthly updates to its Home Value Index. This index compares current home values to those in January 2005, with a figure of 100 indicating that these values are equal. In February, the index stood at 112 – up 0.05 percent from January and a year-over-year jump of 5.47 percent.

"Home values are still making modest annual gains, despite being practically stagnant when measured monthly," said Banfield. "What everyone has their eye on is what will happen as the spring selling season kicks off. Home prices, and in turn home values, are mostly driven by the balance of how many homes are on the market and the volume of buyers vying for them. Most of the industry is expecting the demand will remain high, like in years past, but what remains to be seen is how many owners will choose to list their home – creating availability for both first-time and move-up buyers."

The index of 104.53 in the Northeast represented an increase of 0.5 percent from the previous month and 4.8 percent from the previous year. In the West, the index was up 0.33 percent from January and 5.6 percent from February 2018 to 135.5.

Both the South and Midwest had a decrease in home values from the previous month but an increase from the previous year. The index in the South fell 0.56 percent from January to 113.74, but this was still 5.28 percent higher than in February 2018. In the Midwest, the index of 91.17 represented a 0.25 percent drop from the previous month but a year-over-year gain of 3.72 percent.

The Home Price Perception Index is based on a national database of refinance mortgage applications. In this process, a homeowner estimates how much their property is worth and an appraised value is determined later in the process. The Home Value Index is determined using appraisal data for both purchase and refinance mortgages.

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