Appraisal Gap

Homeowner value perceptions lag after months of steady improvement

Homeowners in January were slightly more likely to overestimate the value of their home, according to the retail mortgage lender Quicken Loans.

In the latest update of its Home Price Perception Index, Quicken Loans found that the average appraisal during the month fell 0.6 percent lower than a homeowner's estimate. This just barely widened the gap between estimates and appraisals from December, when the typical estimate was only 0.5 percent lower than anticipated. However, it was the first time in seven months that the gap grew larger rather than narrowing.

At the same time, Quicken Loans noted that estimates were considerably closer to the mark than they were a year ago. In January 2017, the average appraisal fell 1.47 percent below expectations.

"The appraisal is one of the most important pieces of data in the mortgage process. Often the entire transaction hinges on the appraisal showing a number similar to what the homeowner estimated at the beginning of the process," said Bill Banfield, executive vice president of capital markets at Quicken Loans. "If the appraisal is lower it could mean the homeowner needs to bring additional cash to close, or the loan may need to be reworked. It's very promising to see the homeowner estimate and the appraiser opinion so close together."

Differences between appraised values and estimated values varied based on region. The average appraisal fell 0.72 percent below a homeowner's estimate in the Northeast, compared to 0.7 lower in the South, 0.67 percent lower in the Midwest, and 0.41 percent lower in the West.

Quicken Loans also looks at value estimates in 27 major metropolitan areas. In January, the average appraisal was greater than expected in 20 cities and less than expected in seven cities.

Homeowners were most likely to be pleasantly surprised in Dallas, where the typical appraisal was 2.83 percent higher than a homeowner's estimate. This was followed by San Jose (2.58 percent higher) and Denver (2.18 percent higher). On the other end of the spectrum, the average appraisal was most likely to be less than a homeowner's estimate in Cleveland (1.95 percent lower), Philadelphia (1.87 percent lower), and Baltimore (1.53 percent lower).

Home values considered to climb at the start of the year. Quicken Loans' national Home Value Index for January stood at 106.26, up 0.46 percent from the previous month and 7.03 percent from the previous year. An HVI value of 100 is equal to values in January 2005.

"Low inventory of homes available for sale and a growing economy has led to steadily rising home values as indicated by the strong annual increase of the HVI index," said Banfield. "The recent increase in interest rates could test affordability in the short run, but the desire to own a home remains on firm ground and may ultimately help normalize the inventory issues."

The West saw a strong gain in values, with its Home Value Index jumping 10.46 percent from January 2016 and 2.23 percent from December to 130.77. In the South, the HVI of 107.06 marked a year-over-year increase of 5.08 percent but a decrease of 0.54 percent from the previous month.

The Home Value Index in the Northeast rose 5.22 percent from the previous year and 0.27 percent from the previous month to stand at 99.3. The HVI for the Midwest climbed 6.93 percent from January 2016 and 0.37 percent from December to reach 87.53.

Quicken Loans' reports on home values are based on a national database of appraisals for purchase and refinance mortgages. The Home Price Perception Index is based on information from refinance mortgages, where a homeowner estimates the value of their property and an appraiser provides a value later in the process.