A survey conducted by Zillow reveals that most homebuyers know how to purchase a house -- but their expectations for homeownership are out of line with reality.
The survey reported that even as home prices have continued to decline nationwide over the past five years, 42% of prospective buyers think that home values will appreciate by 7% a year.
Historically, home prices usually appreciate by 2% to 5% a year, Zillow said.
The Zillow survey audience included 177 prospective buyers who plan to purchase a home within the next three years. The firm asked consumers basic questions about the home buying process.
“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 Stan Humphries, chief economist at Seattle-based Zillow. “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.”
Despite the unrealistic expectations regarding price appreciation, survey respondents answered more than 65% of the questions about the home buying process correctly. The majority (87%) of buyers know that closing costs are negotiable and can vary from lender to lender.
However, many important aspects of the home buying process perplexed the respondents -- such as whether to buy private mortgage insurance, and understanding the difference between an appraisal and inspection.
According to the survey, 41% of future homebuyers believe they are required to pay for PMI regardless of how much their downpayment might be.
Zillow also discovered that more than one-third of buyers believe acquiring homeowner's insurance is optional.
“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,” Humphries said.
