Homeowner And Appraiser Opinions Hold Steady As Home Values Decline In December

Homeowner and appraiser opinions were nearly unchanged to end the year. Meanwhile, home values in this index from Rocket Companies^® show a housing market that while still hot may have at least been taken off the boiler with cooler winter temperatures.

We’ll break down everything you need to know if you’re in the market to buy or refi a home. Let’s get into it.

Home Price Perception Index (HPPI)

When it came to estimates of home value, at a national level, there wasn’t much movement in December. Homeowner estimates came in 1% below actual appraised value. This was just a 0.01% narrowing of the gap compared to November.

At the regional level, it was much the same story. Across the four major cross sections of the country, appraisals came in about 1% higher than estimates with very little change to close out 2020.

When it comes to housing, the adage that it’s about location, location, location is as true today as ever. For that reason, it should be a very positive development that across each of the 27 metros measured, appraised values are higher than homeowners think.

Of the cities surveyed, Kansas City, Missouri came in with the highest appraised value when compared against homeowner estimates in December, with home values coming in 1.71% higher than homeowner estimates.

On the other end of the spectrum was Chicago, where values were 0.06% above where homeowners anticipated, the lowest difference for the month.

Looking briefly at directionality, homeowners in Seattle have the biggest increase in the gap between appraisers and homeowners widening by 0.13%. Meanwhile, homeowners in Cleveland made the biggest move toward appraiser opinion, with the difference narrowing by 0.14%.

Rocket Mortgage^® Executive Vice President of Capital Markets Bill Banfield says that homeowners are starting the new year with plenty of equity in their homes.

“For Americans whose resolution is to put their finances in a better position in the new year, this level of home equity could certainly be a boon,” Banfield says. “When we add in the effect of low interest rates, the timing is really good if you’re in the market for a mortgage.”

Home Value Index (HVI)

While the housing market is still incredibly hot, some of the pressure on prices seems to have boiled off in December. Prices were down 0.55% on the month, but they’ve still risen 6.66% since the same time a year ago.

On a regional basis, the market that saw the biggest gains was the West, where home prices were up 1.94% to end the year. The West remains the hottest region in terms of prices for housing, up 10.86% since the end of 2019. Prices were also up 1.32% in the Northeast. For the year, they’ve risen 7.8%.

The Midwest and South saw dips in home prices in December of 1% and 3.27%, respectively. For the year, the Midwest is up 4.81% while the South has seen price increases of 5.92%.

Banfield says a seasonal downtick in home prices isn’t unexpected. For some, it may even present an opportunity.

“While COVID-19 has disrupted some of the normal seasonal shifts we see within the housing market, we could be seeing some here,” Banfield says. “Typically, the cooler temperatures in many parts of the country keep a lid on the number of people looking for homes. Motivated buyers may be able to take advantage of increased buying power at this time because of lower prices.”

Methodology

If you’re asking yourself why this matters and how we arrived at our conclusions, those are fair questions. Let’s start with HPPI.

When people refinance their mortgages, we ask them what they think their home value is so that our experts can get an idea of the loan options that might be available to them based on their goals. Later in the process, we receive an official valuation, most often in the form of an appraisal.

From these two data points, we’re able to derive the following equation:

(Appraised Value - Homeowner Estimate) / Appraised Value

If the value is positive, it means that appraised values came in higher than homeowner estimates, while a negative value means that the appraisal came in lower than expected. In the latter scenario, a client might have to bring more cash to close or rework the transaction, jeopardizing their goals in refinancing.

If people have a fairly accurate idea of their home value, it makes the transaction that much smoother. This is why it’s so important to pay close attention to home values in your local market.

Meanwhile, the HVI is a model that takes into account appraisal data regarding the value of a home, when the appraisal was done, the year the home was built, the square footage and acreage, among other factors. We leverage this data to get a picture of the value of homes in an area.

Now that you know what the market is like out there, if you’re ready to get started you can apply up with our friends at Rocket Mortgage^®. Looking for an agent? We can help!