Value perceptions slip away from appraisals for second month

Homeowners continued to overestimate the value of their home in January, with the average gap between expectations and appraised value widening for the second month in a row.

The typical appraisal came in 1.47 percent below a homeowner's estimated value, according to the latest Home Price Perception Index by retail mortgage lender Quicken Loans. The difference between appraisals and expectations increased from December, when the average appraisal was 1.33 percent less than expected.

This trend marks a reversal from the six months prior to December, when the gap between appraisals and expectations was gradually closing. Quicken Loans determined that appraisals were usually about 2 percent less than expected from mid-2015 to mid-2016, following a period from late 2013 through much of 2014 when the average appraisal was about 2 percent more than expected.

Quicken Loans' monthly reports on value perceptions also look at trends in four geographic regions and 27 major cities in the United States. The company notes how perceptions vary widely by market, with appraisals in booming markets tending to come in higher than anticipated.

"Having a good understanding of the conditions in their local housing market can be a valuable tool for consumers as they prepare for the home buying or mortgage process," said Bob Walters, chief economist at Quicken Loans. "Accurate expectations at the onset of the mortgage process, not only makes it smoother, but can prevent unexpected changes in the amount of funds to bring to the closing table if the appraised value comes in lower than initially estimated."

Homeowners in the West came closest to estimating the appraised value of their home, with the average appraisal coming in 1.19 percent less than expected in the region in January. The typical appraisal was 1.47 percent less than expected in the South, 1.58 percent less in the Northeast, and 1.65 percent less in the Midwest.

Appraisals were higher than expected in 15 of the cities included in the report. The average appraisal was 2.98 percent more than a homeowner's expectation in Denver; 2.15 percent higher in Portland, Oregon; and 2 percent higher in Dallas.

Appraisals were lower than expected in the remaining 12 cities, including five cities where the gap was greater than the national average. The largest differences were in Philadelphia, where the typical appraisal was 2.94 percent less than expected; Baltimore, where it was 2.74 percent lower; and Cleveland, where it was 2.04 percent lower.

The monthly report also includes an update to Quicken Loans' Home Value Index. This figure compares values to those in January 2005, with a figure of 100 indicating values equal to that month. The national index for January was 99.28, down 0.34 percent from December but up 3.93 percent from January 2016.

"Tight inventory has been a key contributing factor to the year-over-year growth in home values," said Walters. "This steady growth could very well lead to more availability, driving homeowners to consider cashing in on their growing equity by putting their home on the market. When this happens, it will open up new opportunities for eager buyers."

The South was the only region to see its Home Value Index grow from both the previous month and previous year. The figure for this region stood at 101.88, up 0.68 percent from December and 3.69 percent from January 2016.

The Home Value Index for the Northeast was 94.37, down 1.37 percent from the previous month but up 2.28 percent from the previous year. The index for the West rose 5.41 percent from January 2016 to 118.39, but was down 0.58 percent from December. In the Midwest, the index fell 0.07 percent from the previous month to 81.86, but still experienced year-over-year growth of 4.63 percent.

Both the Home Price Perception Index and Home Value Index are based on Quicken Loans' home appraisal data. The former figure considers estimates provided by homeowners on refinance mortgage applications and compares them to an appraisal conducted later in this process.