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Takeaways:
- Many borrowers have a “negative perception gap” that’s suppressing housing and mortgage market activity.
- At the end of last year, 37 percent of homeowners perceived that they had more than 20 percent home equity, but CoreLogic estimated that 69 percent actually had significant equity.
- The appreciation gap presents an opportunity to remove a barrier to continued recovery in the housing and mortgage markets.
Many homeowners do not fully understand how much equity they have in their homes, making them reluctant to consider purchasing another home, according to Fannie Mae’s recent National Housing Survey (NHS).
According to the NHS, many borrowers have a “negative perception gap” or “appreciation gap” that is suppressing housing and mortgage market activity.
These borrowers are also likely to underestimate how large a down payment they can make with their home equity, their chances of qualifying for mortgages, and their opportunities for selling their current homes and buying different ones, according to the survey.
Despite home values rising about 20 percent between 2011 and 2014, as many as 15.2 million homeowners may fall into that category, the NHS concluded.
“The housing market recovery over the past few years has been even more halting than the economic recovery,” said Steve Deggendorf, director of Fannie Mae’s Economic & Strategic Research Group, in a commentary about the survey.
“Consumers’ low expectations for home price changes may well reflect perceptions that recent actual house price changes were low. If so, consumers’ perceptions of recent actual home price changes were considerably lower than actual house price changes during 2012 and 2014.”
The survey points to CoreLogic data showing that at the end of last year, 37 percent of homeowners perceived that they had more than 20 percent home equity, but CoreLogic estimated that 69 percent actually had significant equity.
However, the appreciation gap presents an opportunity to remove a barrier to continued recovery in the housing and mortgage markets, Deggendorf said.
“Either the private sector or the public sector could provide information and tools to shrink the appreciation gap,” he suggested.
“Providing homeowners with information and with tools so they can better estimate their home equity may help shrink the gap. Delivering easy, affordable access to better estimates of home values (and perhaps of total debts, too) could afford many benefits. Better equity estimates may promote better choices of houses, mortgages, neighborhoods, jobs, spending and saving and lifestyles.”
And the opportunity “does not require changes in laws or regulations,” Deggendorf noted. “It does not require additional subsidies by business or government. Costs to close the gap can be low.”
