Home Value Appreciation: Homeowner Expectations Vs. Reality

• Those who’ve owned their homes for less than a year overestimated how much their homes have appreciated by a much larger margin than those who have owned their homes for longer; while this group believed their homes to have increased in value by 10.2%, the actual appreciation rate during this period was only 4.1%.
• Homeowners who purchased their homes 7 – 10 years ago were the only group to underestimate how much their home values have grown; while they believed they could sell their homes for 33.7% more than what they purchased them for, the actual total appreciation rate since they purchased their homes is 46.6%.
• Those who purchased their homes 1 – 2 years ago were the most accurate in estimating their home values, only overestimating by 19.4%.

It’s no surprise that homeowners tend to be at least a little optimistic when it comes to their home’s value. After all, a home is a big investment, and it’s natural to be hopeful that investment pays off. The question is, just how optimistic is the average homeowner about their home’s rate of appreciation?The answer to this depends a lot on when they purchased their home. Rocket Homes℠ recently surveyed 2,058 homeowners to find out just how much value they think their homes have gained since they first purchased them and compared those answers to real-life appreciation rates during these same periods.The findings show that, while homeowners have a tendency to be at least slightly over-optimistic, they generally have a fairly accurate grasp of their home’s current worth.

Homeowners Have A Relatively Accurate, If Slightly Rosy, Understanding Of Their Homes’ Values

For the most part, homeowners didn’t grossly overestimate how much their homes have increased in value since purchasing them. In fact, one group even slightly underestimated their rate of appreciation.

Those who have owned their current home for 7 – 10 years reported that they purchased their home for an average of $406,677. If they were to sell that home today, they said, they’d expect to earn $543,789 from the sale – an increase of 33.7%.

However, based on the change from median home prices in 2011 – 2014 to 2021, this group actually underestimated their total appreciation rate by 27.7%.

The only group to significantly overestimate was those who’ve purchased their homes less than a year ago. This group expected their homes to have an average appreciation rate of 10.2% in the time since they originally purchased. However, the actual appreciation rate for this period was 4.1%, meaning they overestimated by 150.8%.

Real Estate Appreciation Rates: Homeowner Expectations Vs. Reality

Homes generally increase in value over time. The longer a person owns their home, the more appreciation they’ll typically experience, which is why survey respondents were separated into groups: a “less than 1 year” group, a “1 – 2 years” group, a “3 – 6 years” group, a “7 – 10 years” group and an “over 10 years” group.

So, how did each group’s assumed appreciation rate stack up to reality?

All the homeowners surveyed seemed to have a general understanding of how time impacts home values and where current home values are at; no group thought they experienced more appreciation than those who have owned their homes for a longer period of time.

The economic period a homeowner purchased in might also impact their understanding of their home’s current value. This could explain, for example, why those who very recently purchased their homes significantly overestimated their appreciation rates, while those who purchased 7 – 10 years ago slightly underestimated.

Real Estate Purchased Less Than 1 Year Ago

• Average reported purchase price: $394,000
• Expected sales price: $434,250

Based on their reported purchase price and expected sales price, this group assumed their new home has an appreciation rate of 10.2% since purchasing their homes less than a year ago. In reality, home values only increased 4.1% during that time – meaning they overestimated by 150.8%.

While it might seem strange that those who have owned their homes for less than a year would expect such a high appreciation rate, it makes sense in the context of the environment they initially purchased in.

This group of homeowners purchased their homes in a white hot, extremely competitive market. With mortgage rates at record lows, many millennials saw this as a great opportunity to become first-time home buyers at the same time that many homeowners were looking to take advantage of fast-growing values. After stumbling slightly last year due to the COVID-19 recession, economists, real estate agents, sellers and buyers saw housing prices shoot up in the second half of 2020, a trend that continued into the first half of 2021. Homes were in high demand and bidding wars and paying far over asking – sometimes as much as $100,000 more – became more common.

While this group has still captured a great percentage of appreciation for only owning their home less than a year, their assumption may be based on this group still feeling the magnitude of such an investment. Additionally, if they sold their last home to buy their current one, they have higher expectations based on their direct experience from how much the hot market boosted their previous homes’ values.

Real Estate Purchased 1 – 2 Years Ago

• Average reported purchase price: $283,594
• Expected sales price: $338,594

This group expected a total appreciation rate of 19.4% since their initial purchase, and they weren’t far off – the actual home value appreciation rate during this period was 16.3%. In other words, those who’ve owned their home for 1 – 2 years were the most accurate of the four groups, only overestimating their price growth by 19.4%.

Those who purchased 1 – 2 years ago have the benefit of having a balance between decent to low interest rates and good affordability, having purchased just before the housing market boomed during the COVID-19 pandemic. Because of this, they’ve likely gained quite a bit of value in their homes in a relatively short period of time.

Real Estate Purchased 3 – 6 Years Ago

• Average reported purchase price: $335,674
• Expected sales price: $432,448

Those who purchased 3 – 6 years ago believed that their homes would sell for 28.8% more than what they initially paid for them. In reality, homeowners who purchased during this period would have only experienced an overall appreciation rate of 22.1%. That’s another slight overestimation of 30.9%.

This group purchased their homes when the economic recovery and expansion following the Great Recession was well underway. They have benefitted both from those gains and the gains from the recent housing boom.

Real Estate Purchased 7 – 10 Years Ago

• Average reported purchase price: $406,677
• Expected sales price: $543,789

Homeowners who’ve owned their current homes for 7 – 10 years were the only group to underestimate their overall rate of appreciation, and they did so by 27.7%. Based on their reported purchase price and expected sales price, these homeowners expected an average overall appreciation rate of 33.7%. The actual overall appreciation rate was 46.6%.

This group initially purchased their homes between 2011 – 2014. During this period, home values were growing, regaining what was lost in the recession and then some. But the memory of the recession was still fresh in everyone’s minds. It may be that this wariness has stuck with these homeowners, and led them to be more conservative about their homes’ values.

Because they’re underestimating the value of their homes, it’s possible many of the homeowners in this group actually have more equity in their homes than they think, which puts them at an advantage if they’re thinking about selling, refinancing or taking cash out of their homes.

Real Estate Purchased Over 10 Years Ago

• Average reported purchase price: $234,905
• Expected sales price: $425,158

Rocket Homes also surveyed homeowners who’ve owned their homes for more than 10 years and found that this group expected an appreciation rate of 81%. However, it’s difficult to do an “expectations vs. reality” for this group because it covers such a large time span.

To get a general sense of this cohort’s potential actual appreciation rates, consider the amount of appreciation a homeowner who purchased their home in 2010 – just 11 years ago – may have experienced. In Q2 of 2010, the median sales price was $219,500. In Q2 of 2021, it was $374,900. This equals an appreciation rate of 70.8%. Those who have owned their homes for longer would likely have experienced even higher rates of appreciation, meaning that this group’s estimate of 81% is entirely plausible, and may even be on the low end depending on exactly when they purchased.

Methodology

To understand how much people believe their homes have increased in value, Rocket Homes surveyed 2,058 American homeowners from across the country and from all different types of living environments (including rural, suburban and urban) and asked them when they bought their current home, how much they paid for it and how much they think they’d be able to sell it for now. The survey was conducted online between July 26 – August 5.

Homeowners were grouped according to how long ago they’d purchased their homes – less than 1 year ago, 1 – 2 years ago, 3 – 6 years ago, 7 – 10 years ago and over 10 years ago. The sample was controlled to ensure each age group, which included individuals ages 30 – 39, 40 – 49, 50 – 59 and those 60 and older, represented a quarter of all respondents. Gender was capped at 60% to ensure that no gender was overrepresented.

Rocket Homes then took the averages of each group’s reported purchase price and expected sales price and used these numbers to determine the percent change, or total expected appreciation rate, for each group.

Then, to compare homeowner perception to reality, data from the Federal Reserve Bank of St. Louis (which uses U.S. Census Bureau and U.S. Department of Housing and Urban Development data) was used to determine the average sales price for each time range.

From this dataset, Q2 median sales price data for each year in the specified time frame was pulled and the average of those prices was determined, representing the average previous sales price for that time frame. The median sales price for Q2 of 2021 was used to represent the current value of homes in the U.S.

For example, to determine the average sales price for the “3 – 6 years” group, the median sales prices from Q2 of 2015, 2016, 2017 and 2018 was taken and the average of those numbers was found. This was done with all of the groups except for the “less than 1 year” group, which used Q3 and Q4 data from 2020 and Q1 and Q2 data from 2021, and the “over 10 years” group, which was not used to compare expectations vs. reality.

Once these averages were determined, the percent change between each time frame’s average previous sales price and the current median sales price was found. This number represented the overall actual appreciation rate for that time frame.

To determine the extent to which homeowners were over- or underestimating their home price appreciation, the percent change between the expected appreciation rate and the actual appreciation rate was also found.