The 21st century has brought many changes to American households. Many people had to completely readjust their standard of living. There were several winners and losers in the recession. Some people were able to purchase homes at low prices. However, things were not so great when the homeowner was ready to sell the home. Homeowners are still overvaluing their homes, but the gap between home prices and appraisals is shrinking.
Home Values Appraisal Rates Across the Country
According to Quicken Loans, home values are almost two percent lower than the average homeowner’s expectations. Since July, the gap has been steadily decreasing. For several years, Quicken Loans has calculated the Home Price Perception Index. The gap has been shrinking since 2008. Homeowners in the Northeast have a history of overvaluing their real estate. On the West Coast, homeowner estimates are closer to the appraised value. The demand for real estate factors into the value disparity, but there are other reasons for the inaccurate estimations.
Comparing Major East Coast and West Coast Cities
In addition to the disparity between East and West Coast homeowners, the appraisal rates were significantly higher in 12 major cities and lower in 15 major cities. In Miami, the average homeowner estimated an amount that was closer to the appraised value. The average estimate was off by less than one percentage point. Home values were more likely to be greater than the homeowner expected in Denver, Colorado. In Denver, the average home appraisal was more than three percentage points higher than the homeowner’s estimation. In San Jose and San Francisco, the appraisal rate was more than two percentage points higher than the homeowner’s estimation.
The Recession and the Housing Market
Several things have led to the overvaluation of real estate. The recession had a domino effect on the real estate market. When the recession devastated the national economy, several companies went out of business. Thousands of people lost their jobs, and they were unable to pay their monthly bills. Some people were able to sell their homes. If the homeowner was overwhelmed with debt, he was likely forced to turn over the property to the lender.
The Property Pileup
In the midst of the recession, many people had to give up their possessions. The banks took over many of the properties, and many banks had more properties than they could handle. Several financial institutions went out of business during the recession, and the remaining banks were given a bailout package. The banks were able to recoup the money they lost in the recession, and they were able to sell their oversupply of real estate. The FDIC helped the banks avoid significant losses.
Inflated Property Values
The commercially owned properties have an artificially high value. The FDIC helped the banks stay solvent after the financial crises, and the bailout led to most homes having high purchase prices. The numbers were inflated, and the real value of the home is significantly lower than the homeowner’s estimation.
Since the recession ended, the housing market has been on an upward trajectory. The market is reaching an equilibrium, and many people are getting an accurate picture of the current housing market. The incline is slow, and some appraisals are still based on data that reflects a depressed market. The artificial market skewed historical data. The real estate market is going through some major adjustments, and many potential buyers are searching for homes on a FSBO website. As the country moves forward and the economy improves, the gap between appraisals and home values will continue to shrink.