(11/18/2011) Erate Exclusive - Even with the exhaustive home buying and housing market information available on and off the internet, many home buyers hold an overly-optimistic outlook for home price appreciation and are stumped by many home buying issues.
Unless they educate themselves, they may be setting themselves up for a raw deal when they buy.
Over the past half decade, report after report has revealed continuing volatility and price drops in the housing market, but more that two in five prospective home buyers believe home prices typically appreciate by 7 percent a year.
Maybe in an alternative universe.
Even in historically "normal" housing markets, home values tend to appreciate by 2 percent to 5 percent a year, according to Zillow, who along with Ipsos, recently surveyed home buyers about the home buying process.
In some markets, home values are 50 percent below 2006 peak prices and, for some markets, that means prices are at or below levels that existed before the 18-month Great Recession began in 2007.
And the media is littered with like-it-or-not doom-and-gloom forecasts and home price reports.
• Last month, Clear Capital said in the third quarter this year, prices nationwide were down nearly 4 percent from the same quarter last year.
Clear's forecast calls for a 1.6 percent U.S. home price drop over the last three months this year, and another 3.2 percent decline, just by the end of first quarter next year.
• Last week, for the month of September, the CoreLogic Home Price Index of national home prices, including distressed sales, declined by 4.1 percent compared to September 2010. That followed a 4.4 percent year-over-year decline in August 2011 compared to August 2010.
• Also last week, the National Association of Realtors (NAR) put the third quarter home price decline in metro areas even higher, at 4.7 percent, as the median price for previously occupied homes sold in the third quarter declined in 111 out of 150 metro areas NAR tracks.
Most analysts say the near future is dim for any home price appreciation, except in select local markets with unusually strong economic indicators.
Home price appreciation as high as 7 percent a year, even in the next decade, is a pipe dream, according to a recent FICO study. When FICO surveyors asked bankers if housing prices nationally would climb back to 2007 levels before the year 2020, 49 percent of respondents said no.
"It's troubling that we're still in the midst of one of the worst housing recessions in history, and yet prospective buyers continue to have such high expectations for home value appreciation," said Dr. Stan Humphries, chief economist at Zillow.
The survey found that buyers didn't have a much better grip on other aspects of home buying and correctly answered survey questions only 65 percent of the time for a barely passing grade.
• Two in five (41 percent) buyers think they are required to buy private mortgage insurance (PMI) regardless of the amount of their down payment. PMI is typically only required when the down payment is less than 20 percent of the purchase price.
• More than half of prospective home buyers confuse appraisals and inspections - 56 percent said the purpose of an appraisal was to determine if the home is in good condition. A home inspection examines the condition of a home. An appraisal determines the home's value.
• More than one in three prospective home buyers (37 percent) believe homeowners insurance is optional. Lenders will not give you a mortgage if you don't have homeowners insurance.
• Almost half of the polled prospective home buyers (47 percent) believe they own the home after the purchase contract is signed. The deal isn't sealed until escrow closes. In the current market, escrows can and do crash and burn more often than they did before the market crashed and burned.
If you are a prospective home buyer now or plan to be one in the future, bone up.
Stay on top of media reports, examine the wealth of online and in-print home buying information and take Zillow's "Buyer IQ Quiz".
You need to be better prepared for what is likely to be the largest purchase you'll ever complete.
Follow the link to continue reading the related articles:
