November 3rd, 2011 9:01 AM by Lehel S.
SEATTLE, Oct. 28, 2011 /PRNewswire/ -- Despite widespread volatility within the housing market and five consecutive years of home value declines, more than two in five (42 percent) of polled prospective home buyers believe home values typically appreciate by 7 percent a year, according to a recent survey by leading real estate information marketplace Zillow (NASDAQ: Z).
This is an unrealistic expectation as, historically, home values in a normal market tend to appreciate by 2-5 percent a year. (1)
Zillow, with Ipsos®, surveyed prospective home buyers (2), asking basic questions about the home buying process.
Despite the unrealistic expectations about home value appreciation, prospective home buyer respondents seem fairly knowledgeable about the home buying process, answering questions correctly more than half the time (65 percent). However, several important parts of the process confused them. Two in five (41 percent) buyers think they are required to buy private mortgage insurance (PMI) regardless of the amount of their down payment. In fact, lenders typically require PMI only when buyers are putting down less than 20 percent of the home's purchase price.
Additionally, more than half of prospective home buyers who were polled confuse appraisals and inspections. Fifty-six percent said the purpose of an appraisal was to determine if the home is in good condition, when in fact that is the purpose of an inspection.
"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. "It's great that buyers seem to have a fairly solid grasp of the home-buying process, but since this is one of the biggest financial decisions of most people's lives, it's even more important that they understand how that investment will appreciate after they sign the papers. Over-estimation of the appreciation potential will lead many to buy real estate when the time in which they plan to live in the house may make renting a better strategy."
Additional Survey Findings
Interactive Online Quiz and Resources Available
An online version of the Zillow survey, the "Buyer IQ Quiz," is available athttp://www.zillow.com/mortgage-rates/buyer-iq-quiz/ and contains the correct answers. Following the quiz, participants are given a score and resources to learn more about the home-buying process.